Essen Speciality Films Ltd Management Discussions

Forward looking statement

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements are prepared under historical cost convention, on accrual basis of accounting, and in accordance with Generally Accepted Accounting Principles in India (‘Indian GAAP) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013 as applicable. The Management of Creative Peripherals and Distribution Limited has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements, reflect in a true and fair manner, the state of affairs and profit for the year.

The following discussions on our financial condition and result of operations should be read together with our audited financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to “we”, “us”, “our”, “the Company”, “Creative” are to “Creative Peripherals and Distribution Limited”.

Global Plastic Industry Overview-

The global plastics market size was valued at USD 507.16 billion in 2023 and is projected to grow from USD 532.64 billion in 2024 to USD 778.67 billion by 2032, exhibiting a CAGR of 5.1% during the forecast period. Rising awareness about the environmental harm caused by polymers influences manufacturers to develop recyclable products. Rising demand for high-performance plastics packaging solutions for the protection of products coupled with increasing technological advancement are the key factors driving the market.

The U.S. dominated the North American market for plastics in 2023 and is expected to continue its dominance over the forecast period. The demand for plastics in the country is majorly generated from demand in flexible packaging followed by expanding automotive industry coupled with the rise in a number of construction activities. Capacity addition and plant expansion by automotive companies in the U.S. are further expected to augment the demand for plastics compounding.

Plastics Market Trends

Increasing Demand for Engineering Plastics Due to their properties to favour the market growth of engineering plastics being more robust and durable than regular ones have increased product demand. They provide better thermal and mechanical properties and are lightweight and cost-effective. The rising need for greater polymer solutions for different end-use industries, such as componentry, machinery, and construction, supports the market expansion. The rising demand for metal substitution increasingly leads to broader usage of engineering polymers in various industries. These materials offer more decisive benefits over metal structures in automotive engineering, construction, solar, and water industries.

Plastics Market Growth Factors

Rising Demand from the Packaging Industry to Drive the Consumption of Plastics

Plastics demand is advancing in widespread industries, such as food & beverage, pharma, consumer goods, automotive, and electrical & electronics. The increasing need for packaging from the food & beverage industry drives product consumption globally. Food manufacturers prefer packaging that minimizes food quality degradation and avoids contamination. The ability of plastics to act as a hurdle between food products and the external environment is fuelling the demand. Besides, the ability of polymers to defend against physical stress and offer high durability is increasing their usage in sports goods, fashion wear, toy-making, and polymer clay. Moreover, they are easy to mold and offer flexibility to produce packaging in any size and shape. Their utility is surging in the textile industry due to their high durability, elasticity, and enhanced visual appeal. Moreover, polymers are also rigid, making them suitable for packing automotive and electrical spare parts. Thus, the increasing application across food & beverage, pharma electrical & electronics, textile, automobile, and consumer goods industries is augmenting the plastics market growth.

Rising Food & Beverage Industry to Boost Packaging Segment Revenue

The packaging segment will hold the highest plastics market share and grow at the highest CAGR during the industry forecast period. This growth is associated with high product demand from the pharma, food & beverage packaging industry. The increasing use in manufacturing construction products, such as films for windows, floor covering, and pipes and fittings, is boosting product adoption in the infrastructure & construction industry.

Similarly, the rapidly growing consumer goods/lifestyle and automotive & transportation end-use industries are expected to aid the market in the assessment period. The rising adoption of polymers in the automobile industry to increase vehicle efficiency and the vehicle components life is responsible for the growth in the market. These polymers are easily moldable, flexible, and highly durable, which makes them the most favored material for manufacturing numerous products such as housewares, iceboxes, toys, packaging materials, and containers.

The increasing utilization of polymers in the healthcare sector can be credited to their property of guarding against contaminants by acting as a hurdle. Healthcare products, such as bandage strips, gloves, blood bags, syringes, and prosthetics, are manufactured using several polymers. The electrical & electronics industry produces light fittings, household appliances, and switches due to their insulating properties.

Rise in the Demand for Electric Vehicles to Drive the Plastics Market

The hike in the price of fossil-based fuels such as petroleum and diesel has created a demand for alternative energy sources in the automotive industry. Therefore, automotive manufacturers have come up with electric energy-based vehicles that deliver nearly the same output as traditional vehicles. These EVs are capable of providing great efficiency owing to the utilization of advanced plastic materials and high-power electric motors. The consumption of plastics makes the vehicle lighter, faster, and energy efficient. On the other side, the emerging trend of EVs resolves the greenhouse gas and additional toxic gas emissions in nature. Therefore, the governments of different countries are providing subsidiaries for hybrid electric vehicles (HEVs) and EV holders. These factors lead to an escalating consumption of plastics in the automotive industry.

Asia Pacific is estimated to hold the largest market share, accounting for USD 278.15 billion in 2023. China is anticipated to remain the leading country in the region due to the abundant availability of raw materials at low rates. This is further minimizing the hurdles involved in plastics production. The growth in Asia Pacific is also attributed to the strong growth in the packaging and construction industries. Additionally, rising demand from the consumer goods industry for manufacturing toys, textiles, and sports goods is expected to drive the market in the region.

Regional Insights

Asia Pacific is estimated to hold the largest market share, accounting for USD 278.15 billion in 2023. China is anticipated to remain the leading country in the region due to the abundant availability of raw materials at low rates. This is further minimizing the hurdles involved in plastics production. The growth in Asia Pacific is also attributed to the strong growth in the packaging and construction industries. Additionally, rising demand from the consumer goods industry for manufacturing toys, textiles, and sports goods is expected to drive the market in the region.

In North America, the U.S. held the largest market share, backed by increasing product demand from the electrical & electronics, healthcare & pharmaceuticals, and packaging industries. Concerns over plastics pollution and the development of recyclable technologies have increased the adoption of recycled plastics in the region.

Europe is anticipated to have substantial growth in this market, owing to the rising demand from the automotive sector in the region. Additionally, properties, including excellent heat resistance, corrosion inhibition, electric Insulation, and low density, support the adoption of polymers in Europe.

The key factor influencing the growth in the Middle East & Africa will be the growing demand from the textile and packaging industries. The surging demand for lightweight packaging and the use of polymers over metal and glass are set to boost the regional market. Furthermore, Latin America is projected to grow due to rising urbanization and the growing number of companies specializing in industrial packaging solutions.

Source: https://www.fortunebusinessinsights.com/plasticss-market-102176

India Plastic Industry Overview

The Indian plastics industry is one of the leading sectors in the countrys economy. The history of the plastics industry in India dates back to 1957 with the production of polystyrene. Since then, the industry has made substantial progress and has grown rapidly. The industry is present across the country and has more than 2,500 exporters. It employs more than 4 million people in the country and constitutes 30,000 processing units; among these, 85-90% belong to small and medium enterprises. India manufactures various products such as and linoleum, houseware products, cordage, fishnets, floor coverings, medical items, packaging items, plastics films, pipes, raw materials, etc. The country majorly exports plastics raw materials, films, sheets, woven sacks, fabrics, and tarpaulin. The Government of India intends to take the plastics industry from a current level of Rs. 3 lakh crore (US$ 37.8 billion) of economic activity to Rs. 10 lakh crore (US$ 126 billion) in 4-5 years.

Trend in Export

In FY24 (Until February 2024), Indias plastics exports stood at US$ 10.43 billion. During this period, the exports of human hair & related products, medical items, plastics pipes and FRP & composites grew by 12.7%, 8.9%, and 13.8%, respectively, over the same period last year.

In February 2024, the exports of Floorcoverings, leather cloth & Laminates witnessed a growth of 19.7%. The cumulative exports of plastics and related materials during 2022-23 were valued at US$ 11.96 billion.

India exports plastics to more than 200 countries in the world. The top five consumers and house ware product importing countries are the USA, Germany Japan, the UK, and France. India largely exports plastics and related products to the USA, China, the UAE, the UK, Germany, Italy, Bangladesh, etc.

The total plastics exports from India to France during 2022-23 were around US$ 211.4 million. In order to boost exports to France and Europe, PLEXCONCIL collaborated with the Indo-French Chamber in the first quarter of 2021-22. The Minister for Commerce and Industry has recently urged to adopt international standards to help it expand its global footprint. India has recently signed a free-trade agreement with UAE and Australia, which will give the plastics industry new opportunities.

Government Initiatives

Government Initiatives

The Plastics Export Promotion Council (PLEXCONCIL) has set a target to increase the plastics exports of the country to US$ 25 billion by 2027. There are multiple plastics parks that are being set up in the country in a phased manner that will help improve the plastics manufacturing outputs of the country. Under the plastics park schemes, the Government of India provides funds of up to 50% of the project costs or a ceiling cost of Rs. 40 crore (US$ 5 million) per project.

Government initiatives like “Digital India”, “Make in India”, and “Skill India” will also boost Indias Plastics industry. For instance, under the “Digital India” program, the government aims to reduce the import dependence on products from other countries, which will lift the local plastics part manufacturers.

The government also launched a program for building Centres of Excellence (CoEs) to develop the existing petrochemical technology and promote the research environment pertaining to the sector in the country. This will aid in promoting and developing new applications of polymers and plastics in the country. Additionally, 47 centres of Central Institute of Plastics Engineering & Technology (CIPET) have been established already to accelerate financial and technological collaboration for promoting skills in the chemicals and petrochemicals sector.

Source: https://www.ibef.org/exports/plastics-industry-india

2021-22 Demand 20898 KT 2022-23 Est. 22152 KT YoY Growth ~ 6 % Source: PLASTINDIA FOUNDATION /Industry Estimate

Decorative Plastic Industry

The decorative plastic industry is growing rapidly, driven by urbanization and globalization trends. In 2022, the global market for decorative plastic and paper laminates was valued at $79.75 billion and is expected to reach $112.96 billion by 2029, growing at a compound annual growth rate (CAGR) of 5.1%. Decorative plastic products are used to enhance the visual appeal of homes and buildings, including items like furniture, lamps, textiles, floor coverings, and various decorative accessories.

The market is expanding due to several factors. The increasing popularity of pre-assembled furniture, the rise in construction activities, and the growing trend of using laminate flooring are key drivers. Additionally, the low installation costs and easy maintenance of decorative plastics compared to traditional materials are boosting the demand. Technological advancements in printing and the development of eco-friendly laminates are also creating significant growth opportunities for market players.

The rise of e-commerce is also playing a crucial role in the growth of the decorative plastic industry. More consumers are purchasing decorative items online, driven by the convenience, variety, and competitive pricing offered by online platforms. This trend is expected to continue, with companies ensuring that their products are available both online and offline to meet consumer demand. The growing disposable income and better education levels are also contributing to increased spending on home decor, especially among working women.

Despite the positive outlook, the industry faces challenges such as fluctuating raw material prices and competition from alternative materials. However, the focus on sustainability and the introduction of innovative designs are expected to drive future growth. Companies are investing in new manufacturing techniques and expanding their product portfolios to capture a wider customer base, particularly in developed markets like the USA, Germany, the UK, France, and Italy.

Source: https://www.maximizemarketresearch.com/market-report/global-decorative-plastic-and-paper-laminates-market/69978/ https://markwideresearch.com/decorative-plastic-and-paper-laminates-market/

About Essen Speciality Films Limited

Our Company was incorporated on August 14, 2002 as ‘Essen Speciality Films Private Limited and converted into a public limited company on December 31, 2022 as Essen Speciality Films Limited. We are one of the leading manufacturers and exporters of specialized plastic products in the home improvement and home furnishing in India, backed by 35+ years of rich machine manufacturing experience of Rajoo Engineers Limited, we have since then grown into a company that is supplying products to numerous Fortune 500 Retailers and OEMs across 24 countries. Our Company has been recognized as a ‘Two Star Export House by Ministry of Commerce & Industry, Government of India. We have also been exclusive global supplier of IKEA for certain of our products, since incorporation. We were awarded with the awards of ‘Best Supplier of the Year, twice by IKEA. We operate a fully-integrated, sustainable and technologically advanced manufacturing unit, which has been certified to be compliant with the requirements of ISO 9001:2015.

FINANCIAL OVERVIEW

The financial performance of the Company for the year ended March 31, 2024, is as follows:

Total revenue from operations of Rs. 142.68 crore in FY 2023-24, as against Rs. 119.44 crore in FY 2022-23, representing a YoY increase of 19.46%

EBITDA was Rs. 25.13 crore in FY 2023-24 as against Rs. 21.04 crore in FY 2022-23, increase of 19.44% YoY

Profit after tax was Rs. 14.24 crore in FY 2023-24 compared to Rs. 14.21 crore in FY 2022-23, increase of 0.21% YoY

Basic EPS stood at Rs. 7.28 in FY 2021-22 as compared to Rs. 8.88 in FY 2022-23

RESOURCES AND LIQUIDITY

As on March 31, 2024, the Networth stood at Rs. 143.09 crore and the total debt was Nil.

The cash and cash equivalents at the end of March 31, 2024, were Rs. 38 crore.

Details of Significant Changes in the Key Financial Ratios and Return on Net Worth

The detail of significant changes (25% or more) in the key financial ratios and any changes in Return on Net Worth of the Company including explanations therefor are given below:

Particulars	FY 2023-24	FY 2022-23	(%) Variance	Explanation
Debtors Turnover (in times)	7.89	7.63	3.42%	N.A.
Inventory Turnover (in times)	4.08	3.84	6.38%	N.A.
Interest Coverage Ratio (number of times)	22.06	8.50	159.41%	There is rise in this ratio due to higher profits generated during current year and lower utilisation of borrowings.
Current Ratio (number of times)	13.72	3.41	301.91%	The Ratio has Improved due to significant increase in current assets and decrease in short term Borrowings.
Debt Equity Ratio (number of times)	-	0.08	-100.00%	The Ratio has Improved due to increase in share holders funds and decrease in companys Debt.
Operating Profit Margin(%)	20.36%	20.86%	-2.43%	N.A.
Net Profit Margin (%)	9.98%	11.90%	-16.09%	N.A.
Return on Net worth (%)	9.95%	16.65%	-40.21%	There is decrease in this ratio due to significant rise in net worth on account of fresh funds raised through IPO during the current financial year.

SEGMENT WISE BUSINESS PERFORMANCE

The company is engaged in the business of manufacturing of plastic and home decor products. The Company does not have more than one reportable segment in terms of AS 17 hence segment wise reporting is not applicable. As compared to other players in this segment, Company continues to be among the top performers in terms of growth in sales and profits and market share.

RISKS AND CONCERNS

Like every business, the Company faces risks, both internal and external, in the undertaking of its day-to-day operations and in pursuit of its longer-term objectives. A detailed policy drawn up and dedicated risk workshops are conducted for each business vertical and key support functions wherein risks are identified, assessed, analyzed and accepted / mitigated to an acceptable level within the risk appetite of the organization. The risk registers are also reviewed from time to time.

The Company faces the following Risks and Concerns:

Credit Risk

To manage its credit exposure, Essen has determined a credit policy with credit limit requests and approval procedures. Company does its own research of clients financial health and project prospects before bidding for a project. Timely and rigorous process is followed up with clients for payments as per schedule. The Company has suitably streamlined the process to develop a focused and aggressive receivables management system to ensure timely collections.

Interest Rate Risk

The Company has judiciously managed the debt-equity ratio. It has been using a mix of loans and internal cash accruals. The Company has well managed the working capital to reduce the overall interest cost.

Competition Risk

This risk arises from more players wanting a share in the same pie. Like in most other industries, opportunity brings with itself competition. We face different levels of competition in each segment, from domestic as well as multinational companies. The Company has created strong differentiators in project execution, quality and delivery which make it resilient to competition. Furthermore, the Company continues to invest in technology and its people to remain ahead of the curve. A strong, stable client base consisting of large and mid-sized corporations further helps to insulate the Company from this risk. We counter this risk with the quality of our infrastructure, our customer-centric approach and our ability to innovate customer specific solutions, focusing on pricing and aggressive marketing strategy, disciplined project executions, coupled with prudent financial and human resources management and better control over costs. Thus, we do not expect to be significantly affected by this risk.

Input Cost Risk

Our profitability and cost effectiveness may be affected due to change in the prices of raw materials, power and other input costs. Some of the risks that are potentially significant in nature and need careful monitoring are Raw Materials prices, availability of Power etc.

Liability Risk

This risk refers to our liability arising from any damage to cargo, equipment, life and third parties which may adversely affect our business. The Company attempts to mitigate this risk through contractual obligations and insurance policies.

STRENGTHS :

1) Promoters sound Experience : The promoters of the Company have over 20 years of Plastics Processing Expertise using 3 Different Plastics Processing Techniques Extrusion, Compression Moulding, and Injection Moulding

2) Ethical and Compliant Factory setup : The Company is compliant with various Indian and International Standards and Socio-Ethical Compliances like Sedex-SMETA, BSCI-Amfori, ISO, etc. These compliances and certifications are the reasons for the customers to Essen as a preferred partner.

3) Unique and Diverse Product Range : The Companys products are designed, curated and manufactured to the highest quality standards set by the customers. Using 3 different Plasticizing Techniques, we are able to cater in various categories like Bath Essentials, Kitchen & Dining, Storage & Organization, Fitness & Lifestyle, Outdoor & Utilities and various other specially designed and customized products.

The products manufactured and supplied by the Company are entry level products at mass market retailers and organized retail chains across the globe. These products have an established and expanding market in developed economies, and have a growing market in developing economies across the world.

4) Sustainable Solutions : The products of the Company are not only affordable, but also sustainable. We take pride to have provided variety of sustainable plastics solutions to our customers. We were one among a very few manufacturers in the world to introduce PEVA shower curtains made from post-consumer recycled GRS certified materials. We were also front runners in introducing the use of Bio-PE and Bio-EVA in a few of our products almost 10 years ago.

5) Young and Diverse workforce : At Essen, our biggest asset is our young and dynamic workforce from different facets of life who are ready to take on challenges and deliver every day. Average age of an employee is in their early thirties with about 65% of women in the total workforce.

OPPORTUNITIES :

1) Increasing Organized Retail Chains in India : Our products and product ranges are gradually expanding and gaining traction in the domestic market. With organized retail chains increasing in India, we believe there is great room for our products to be showcased and liked by the customers.

2) Growing opportunities in E-commerce business : E-Commerce is growing rapidly in the global eco system and it is offering great opportunities for the Manufacturers to expand their reach upto the consumers. Our E-commerce stores on Amazon.com, Flipkart.com, Meesho.com, Snapdeal.com are demonstrating growth year over year via our private label brands like Draperi, Runer and Estacell. Essen embraces E-commerce and plans to create a strong foothold on E-commerce for our product categories.

3) Horizontal Deployment of our Product Range : The lowest hanging fruit we could think of is customizing and curating all of our products for all the customers. Our customers are some of the worlds largest retailers, selling a range of products in all the categories. Our wished position would be to offer and sell all of our products to all of our customers. This will help us gain sales with minimum marketing efforts and strengthen our relationship with the customers. Almost all of our products, like PEVA Printed Shower Curtains, Yoga Mats, Artificial Plants & Flowers, Shelf Liners are all only attention and admiration recently. There is an immense growth potential for our products in the developed and developing economies worldwide.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Company implemented proper and adequate systems of internal control to ensure that all assets are safeguarded and protected against loss from any unauthorized use or disposition and all transactions are authorized, recorded and reported correctly. The Company also implemented effective systems for achieving highest level of efficiency in operations, to achieve optimum and effective utilization of resources, monitoring thereof and the compliance with provisions all laws including the Companies Act, 2013, Listing Agreement, directions issued by the Securities and Exchange Board of India, labour laws, tax laws etc. It also aimed at improvement in financial management, and investment policy. The System ensures appropriate information flow to facilitate effective monitoring. The internal audit system also ensures formation and implementation of corporate policies for financial reporting, accounting, information security, project appraisal, and corporate governance. A qualified and independent Audit Committee of the Board of Directors also reviews the internal control system and its impacts on improvement of overall performance of the Company.

HUMAN RESOURCES

The Companys HR philosophy is to establish and build a high performing organization, where everyone is motivated to perform to the fullest capacity: to contribute to developing and achieving individual excellence and departmental objectives and continuously improve performance to realize the full potential of our personnel. As on March 31, 2024, Company is giving direct employment to 721 employees. Industrial relations are cordial and satisfactory.

OUTLOOK

The future of the decorative plastic in both established and emerging economies has become more popular due to trends towards increased urbanisation and globalisation. The market for decorative plastics worldwide was worth US$ 641.4 billion in 2020, and it is anticipated to grow to $838.6 billion by 2027. Decorative Plastic is a powerful medium for expressing the way of life that a customer follows. Products made up of decorative plastic are used to decorate houses and apartments. Such houses or apartments with various furniture and accessories to give it a more aesthetically pleasing appearance. Items in Decorative plastic include household furniture, lamps, textiles, floor coverings, pots, candles, artifacts, furnishing items, etc. The Global Online Decorative Plastic is expected to grow by US$ 52.95 Billion during 2021- 2025 progressing at a CAGR of 9% during the forecast period.

Over the recent past, major key manufacturers of decorative plastic and paper laminates have been focusing on enhancing their products offerings with an aim to capture a wider customer base in developed countries such as the U.S., Germany, U.K., France and Italy, among others. For the same, companies are establishing new printing techniques and innovating new textures. This increase in product portfolio is expected to create opportunities for the growth of the decorative plastic and paper laminates market during the forecast period.

At Essen, we are pleased to inform you that, we listed on NSE SME Exchange at a premium of 30.8% above issue price on July 06 2023. IPO was oversubscribed 71 times on last day. We are manufacturer and exporter of specialized plastic products in the home improvement and home furnishing industry, to renowned multinational modern trade retailers, such as IKEA, Walmart, and Kmart, among others.

We recently welcomed esteemed customers from renowned Australian retail giant to their state-of-the-art manufacturing facility. This visit proved to be a fruitful and insightful exchange of ideas, exploring possibilities for new collaborations and business expansion. The discussions focused on exploring opportunities in the artificial flower and plants category as the next strategic step to expand their offering and cater to growing market demands. The visit centred around the kitchen & dining category expressing keen interest in new products like bendable chopping boards and placemats.

Company success lies in the strength of relationship with customers who have been associated with us. In line with our strategy we continuously focusing on market penetration and sustained investments in research and development to support the progress. It is industry practice to manufacture products with client specifications to garner competitive advantage. The Company is in process of identifying new avenues of growth and effective utilization of its existing resources.