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 continues to grow at a healthy pace driven by sustained demand across packaging, automotive, construction, healthcare and consumer goods. According to Fortune Business Insights, the global plastics market was valued at USD 533.59 billion in 2025 and is projected to grow from USD 560.38 billion in 2026 to USD 832.62 billion by 2034, exhibiting a CAGR of 5.1% during the forecast period. Polyethylene continues to retain the largest product share, supported by its durability, moisture resistance and widespread use in packaging and home furnishing applications.

The Asia-Pacific region remains the dominant force, accounting for approximately 53% of the global plastics market in 2025, driven by rapid urbanisation, industrialisation, and a growing middle class in countries such as China and India. China remains the leading producer and consumer due to abundant raw materials, low-cost manufacturing and strong end-use demand across construction, packaging and consumer goods.

Sustainability has emerged as the defining theme for the industry globally. Bioplastics adoption, while still under 2% of global plastics production, is growing at double-digit CAGR, particularly in packaging and disposable consumer items. The European Unions Single-Use Plastics Directive, Extended Producer Responsibility (EPR) frameworks, recycled-content mandates, and the upcoming digital product passport requirements under the Circular Economy Action Plan are reshaping product design and material choices across the value chain. For companies like ESFL with significant exports to Europe, North America and Australia, these regulatory shifts create both compliance requirements and opportunities in eco-compliant product segments.

Plastics Market Trends

Engineering plastics continue to favour market growth, being more robust and durable than commodity grades. They provide superior thermal and mechanical properties while remaining lightweight and cost-effective. The rising need for advanced polymer solutions in componentry, consumer goods, construction and healthcare supports market expansion. High-performance materials, including EVA (ethylene vinyl acetate), LDPE (low-density polyethylene) and PEVA (polyethylene vinyl acetate) — central to ESFLs product basket — are witnessing sustained demand in home furnishing, bath and fitness applications globally.

The rapidly expanding EV sector, growing disposable incomes in emerging markets, and the boom in organised global retail (both physical and e-commerce) continue to drive demand for high-quality, aesthetically superior plastic-based consumer products. Rising preference for recyclable, low-VOC and sustainable alternatives within home d?cor and furnishing categories is creating premium differentiation opportunities for manufacturers with ESG-compliant product lines

India Plastic Industry

The Indian plastics industry remains one of the leading sectors in the countrys economy. The Indian plastics industry is currently valued at approximately USD 26.61 billion in 2025, with projections to reach USD 44.59 billion by 2030 at a CAGR of approximately 10.9%. The industry employs more than 4 million people and constitutes over 30,000 processing units, with 85-90% belonging to small and medium enterprises.

India exports plastic products to more than 200 countries worldwide. According to the Plastics Export Promotion Council (PLEXCONCIL), India recorded 8% growth in plastic exports during FY 2024-25, with total export value reaching USD 12.5 billion, up from USD 11.5 billion in FY 2023-24. PLEXCONCIL has set a target of USD 25 billion in plastic exports by 2027. In FY26 (April 2025–February 2026), cumulative plastic exports posted 1.4% growth to USD 11,484.5 million, with consumer and houseware products — directly relevant to ESFLs portfolio — continuing to grow as a category.

Government initiatives such as "Make in India", "Digital India" and the Production Linked Incentive (PLI) scheme are continuing to attract investments into local manufacturing, benefiting Indias position as a global supplier of plastic home furnishing and consumer products. The industry is also advocating for the early conclusion of Free Trade Agreements with the United Kingdom and the European Union, which would provide further tariff advantages for Indian exporters.

Decorative Plastics and Home Furnishing — Sector Outlook

The decorative plastics and home furnishing sector — the primary addressable market for Essen Speciality Films — operates at the intersection of consumer lifestyle trends, global organised retail growth and sustainable materials innovation. The global decorative plastic coatings market was valued at approximately USD 25.45 billion in 2024 and is projected to reach USD 37.12 billion by 2033, growing at a CAGR of 5.5%. The broader decorative plastics and paper laminates market is expected to exceed USD 112 billion by 2029.

Rapid urbanisation, rising disposable incomes and the expansion of organised retail and e-commerce channels in North America, Europe and Asia-Pacific are fuelling demand for aesthetically driven, functional and lightweight home improvement products. Sustainability megatrends are accelerating the shift toward recyclable, low-VOC and OEKO-TEX certified materials — an area where ESFL, with its ISO 9001:2015 certified, fully integrated manufacturing plant, is well positioned to capitalise.

Key product categories experiencing strong tailwinds include bath accessories (shower curtains, bath mats), shelf and drawer liners, artificial plants and home d?cor, yoga and fitness mats, outdoor utility products and kitchen accessories — all of which form the core of ESFLs diversified product portfolio.

About Essen Speciality Films Limited

Essen Speciality Films Limited (ESFL) is a leading Indian manufacturer and exporter of specialized plastic products in the home improvement and home furnishing industry. The Company serves renowned multinational modern trade retailers and OEMs across 24 countries, including IKEA, Walmart, Kmart, Bed Bath & Beyond, Rusta, Runsven, Kohls and Kroger, among others. The Company has been recognised as a Two-Star Export House by the Ministry of Commerce & Industry, Government of India.

ESFL is part of the Rajoo Group — a respected Gujarat-based industrial conglomerate with over four decades of presence in plastics and plastic processing machinery, led by Rajoo Engineers Limited (NSE/BSE-listed). ESFL commenced operations in 2002 with the manufacture of desk mats and has progressively expanded its product portfolio and manufacturing capabilities, culminating in a successful NSE-SME IPO in 2023.

The Company operates a fully-integrated, sustainable and technologically advanced manufacturing plant at Veraval (Shapar), Rajkot, Gujarat, certified to ISO 9001:2015. ESFLs products are recognised for their quality, design precision and sustainability credentials — it has been twice recognised as Best Supplier of the Year by IKEA, among its most prestigious accolades.

In FY 2025-26, ESFL also voluntarily transitioned to reporting under Indian Accounting Standards (Ind AS), with effect from April 1, 2025, demonstrating its commitment to enhanced governance and transparency standards commensurate with its listed status.

Product Portfolio

ESFL offers a diverse, multi-category product portfolio spanning seven major segments, enabling it to serve a wide range of global retail and OEM customers:

- Bath Area: PEVA Shower Curtains and Liners, Shower Curtain Accessories (Curtain Rings, Hooks, Anti-draft Clips, Magnets, Glass Stones), Bath Tub and Shower Mats

- Kitchen & Dining: Chopping Boards, Tablecloths with Non-Woven Backing, Disposable Party Table Covers, EVA Foam Placemats and Coasters, PP Placemats

- Storage & Organisation: Shelf Liners / Drawer Liners, Desk Mats

- Fitness & Lifestyle: Yoga Mats, Interlocking Foam Tiles, Kids Puzzle Mats

- Home D?cor: Artificial Plants, Artificial Flowers (marketed under the Paperi brand)

- Outdoor & Utility: Tarpaulin / Tarp, Vehicle Covers, Pond Liners, Rain Gear & Ponchos

- Customised Products: Delivery Bags, Reusable Shopping Bags, Spa Slippers, Baby Shower Caps, Plant Pots, Bottle Carriers, Films / Rolls

Products are marketed under three proprietary brands — Drapet (shower curtains), Runer (shelf liners) and Paperi (artificial plants and placemats) — allowing ESFL to build brand equity in select high-volume categories alongside its OEM and private-label business.

Customer Base and Strategic Diversification

A critical strategic evolution in ESFLs history has been its deliberate diversification away from single-customer dependence. IKEA, once contributing approximately 95% of ESFLs revenues in FY20, accounted for approximately 34% by FY24, reflecting the Companys successful addition of large global accounts including Decolin Inc. (a key Walmart and Bath & Beyond supplier), Shurtape Technologies LLP, and other multi-national retailers. This diversification underpins revenue resilience and reduces counterparty concentration risk.

Business Performance — FY 2025-26

Overview of the Financial Year

Financial Year 2025-26 was a year of significant operational and financial challenge for Essen Speciality Films Limited. The Company reported consolidated revenue from operations of Rs. 163.05 crore for FY26, against Rs. 173.00 crore in FY25, representing a year-on-year decline of 5.75%. More significantly, the Company reported a net loss (PAT) of Rs. 4.04 crore for FY26, reversing from a net profit of Rs. 11.55 crore in FY25 — a year-on-year swing of Rs. 15.59 crore at the bottom line.

This years results also reflect the first-time adoption of Ind AS, with the transition from Indian GAAP effective from April 1, 2025. Comparative figures for FY25 have been restated in accordance with Ind AS 101 — First-time Adoption of Indian Accounting Standards. The audited results carry an unmodified opinion from the Statutory Auditors, M/s. Rushabh R Shah and Co., Chartered Accountants.

Quarterly Performance Trajectory

Quarter	Revenue from Operations (Rs. Cr)	Net Profit/(Loss) (Rs. Cr)	Operating Margin (%)
Q1 FY26 (Jun25)	41.16	1.78	8.58%
Q2 FY26 (Sep25)	48.35	5.19	19.54%
Q3 FY26 (Dec25)	41.42	(2.20)	(2.70%)
Q4 FY26 (Mar26)	32.12	(8.80)	(35.46%)
FY26 Full Year	163.05	(4.04)	(2.62%)
FY25 Full Year	173.00	11.55	12.17%

The Q2 FY26 performance demonstrated the Companys underlying operating capability — at Rs. 48.35 crore in revenue and a 19.54% operating margin, the business showed that its model can be highly profitable at adequate scale and capacity utilisation. The Q3 and Q4 deterioration, where revenues fell by 22.45% sequentially and 28.16% year-on-year in the final quarter, and operating margins turned deeply negative, reflects extraordinary headwinds that management will need to address structurally in FY27.

Financial Overview

Profit & Loss Statement Analysis (Ind AS, Standalone)

The financial performance of the Company for the year ended March 31, 2026, prepared under Ind AS for the first time, is summarised below (figures in Rs. Lakhs):

Particulars	FY 2025-26	FY 2024-25	YoY Change
Revenue from Operations	16,305.07	17,300.37	(5.75%)
Other Income	148.05	279.62	(47.05%)
Total Income	16,453.22	17,579.99	(6.41%)
Cost of Materials Consumed	9,758.66	12,480.70	(21.81%)
Changes in Inventories	202.90	(2,135.17)	NM
Employee Benefits Expense	2,972.01	2,441.24	21.74%
Finance Costs	199.64	208.36	(4.19%)
Depreciation & Amortisation	421.54	573.36	(26.48%)
Other Expenses	3,325.32	2,424.90	37.13%
Total Expenses	16,880.07	15,993.39	5.54%
Exceptional Items (net)	—	—	—
PBT	(426.95)	1,586.60	NM
Tax Expense / (Credit)	(23.09)	431.43	NM
Profit / (Loss) After Tax	(403.86)	1,155.17	NM
Other Comprehensive Income	(5.52)	(8.72)	36.70%
Total Comprehensive Income	(409.38)	1,146.45	NM

Revenue from Operations

Revenue from operations declined from Rs. 173.00 crore in FY25 to Rs. 163.05 crore in FY26, a decline of Rs. 9.95 crore or 5.75% year-on-year. This marks a reversal from the strong 21.25% growth achieved in FY25 and reflects a combination of demand-side challenges in key export markets, order concentration risks, and operational disruptions.

Cost Structure and Margin Analysis

Cost of materials consumed declined by 21.81% to Rs. 97.59 crore in FY26 (from Rs. 124.81 crore in FY25), which in isolation would have been margin accretive. However, the Company experienced a significant adverse movement in inventory (change in inventories adding Rs. 2.03 crore to costs versus a credit of Rs. 21.35 crore in FY25 — a swing of Rs. 23.38 crore) and a 37.13% increase in other expenses to Rs. 33.25 crore, together overwhelming the raw material savings.

Employee benefits expense increased by 21.74% to Rs. 29.72 crore (versus Rs. 24.41 crore in FY25), reflecting headcount additions and salary revisions made during the year. Given the decline in revenues, employee cost as a percentage of revenue rose sharply to 18.23% in FY26 from 14.11% in FY25, contributing materially to the operating loss. Finance costs declined marginally to Rs. 1.99 crore from Rs. 2.08 crore, reflecting modest improvement in working capital management. Depreciation declined by 26.48% to Rs. 4.22 crore from Rs. 5.73 crore.

Transition to Ind AS

FY26 marks the Companys first year of financial reporting under Ind AS, voluntarily adopted with effect from April 1, 2025, with the transition date of April 1, 2024. This transition has resulted in certain restatements of prior-year comparative figures, including fair value accounting for investments, accounting for lease liabilities (net investment in lease), recognition of foreign exchange derivative impacts, and adjustments to employee benefit obligations. The auditors have drawn attention to this transition in their report as an Emphasis of Matter, without modification of their unmodified audit opinion.

Balance Sheet Analysis

The following table summarises the standalone balance sheet position as at March 31, 2026 (Rs. Lakhs):

Particulars	March 31, 2026	March 31, 2025
ASSETS
Property, Plant & Equipment	4,156.34	4,177.78
Capital Work in Progress	3,264.19	13.19
Investment Property	251.84	256.69
Other Intangible Assets	—	0.86
Investments	206.49	243.74
Other Financial Assets (NC)	12.15	12.42
Other Non-Current Assets	117.52	170.04
Total Non-Current Assets	8,008.53	4,874.72
Inventories	8,897.95	7,409.49
Trade Receivables	1,152.98	2,377.99
Cash and Cash Equivalents	18.30	20.88
Bank Balances	1,509.70	2,508.30
Loans	9.27	14.12
Other Financial Assets	20.86	51.39
Other Current Assets	1,091.63	1,941.04
Total Current Assets	12,700.40	14,323.21
Total Assets	20,708.93	19,197.93
EQUITY & LIABILITIES
Share Capital	2,483.90	2,483.90
Other Equity	12,172.27	12,830.03
Total Equity	14,656.17	15,313.93
Non-Current Borrowings	1,866.15	—
Deferred Tax Liabilities (Net)	147.76	130.09
Total Non-Current Liabilities	2,013.91	130.09
Short-Term Borrowings	2,810.05	1,746.46
Trade Payables (MSME)	672.77	301.21
Trade Payables (Others)	62.18	685.53
Other Financial Liabilities	230.68	225.84
Other Current Liabilities	97.53	597.19
Provisions	165.64	175.10
Current Tax Liabilities, Net	-	22.58
Total Current Liabilities	4,038.85	3,753.91
Total Equity and Liabilities	20,708.93	19,197.93

Key Balance Sheet Observations

Total assets expanded to Rs. 207.09 crore from Rs. 191.98 crore, driven primarily by a significant increase in Capital Work in Progress (CWIP) from Rs. 0.13 crore to Rs. 32.64 crore — reflecting ongoing capacity investments — and a build-up in inventories to Rs. 88.98 crore from Rs. 74.09 crore, despite lower revenues. Trade receivables declined sharply to Rs. 11.53 crore from Rs. 23.78 crore, reflecting improved collections from large customers.

On the liabilities side, the Company has incurred non-current borrowings of Rs. 18.66 crore (nil in FY25) and saw short-term borrowings increase to Rs. 28.10 crore from Rs. 17.46 crore in FY25 — reflecting working capital financing needs amidst the revenue decline and inventory build-up. Total debt as of March 31, 2026 stood at Rs. 46.76 crore (Rs. 18.66 crore long-term + Rs. 28.10 crore short-term), compared to Rs. 17.46 crore (all short-term) in FY25. Net worth declined to Rs. 146.56 crore from Rs. 153.14 crore owing to the net loss for the year.

Cash Flow Analysis

Despite the net loss for the year, the Company generated positive net cash from operating activities of Rs. 0.52 crore (after income tax paid) in FY26, compared to a significant net cash outflow from operations of Rs. 18.51 crore in FY25. The improvement in operating cash generation was driven by the beneficial unwind of trade receivables and partial improvement in working capital flows, partially offset by inventory build-up.

Cash used in investing activities was Rs. 25.35 crore in FY26, primarily reflecting capital expenditure on property, plant and equipment of Rs. 36.46 crore and bank deposits placed of Rs. 9.99 crore, partially offset by interest received of Rs. 1.06 crore. The high capex level, which corresponds to the CWIP of Rs. 32.64 crore on the balance sheet, signals ongoing investment in manufacturing infrastructure. Cash flows from financing activities were positive at Rs. 24.82 crore, reflecting net proceeds from long-term borrowings of Rs. 20.25 crore and net short-term borrowings of Rs. 9.05 crore, partially offset by finance costs and dividend paid.

Key Financial Ratios — Significant Changes

As required under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the following table presents the key financial ratios for FY26 against FY25, with explanations for significant changes (25% or more variance):

Particulars	FY 2025-26	FY 2024-25	Variance (%)	Explanation
Debtors Turnover (times)	9.24x	8.02x	+14.88%	N.A.
Inventory Turnover (times)	2.00x	3.04x	-34.19%	The decrease is attributable to higher average inventory levels along with relatively stable cost of goods sold.
Interest Coverage Ratio (times)	-2.22x	11.38x	-119.55%	Primarily due to the reduction of earning during the year and the corresponding decline in earnings available to meet finance costs. The negative ratio reflects the impact of lower operating earnings vis-?-vis the finance costs incurred during the year.
Current Ratio (times)	3.14x	3.82x	-17.59%	N.A.
Debt Equity Ratio (times)	0.32x	0.11x	+179.77%	The increase is mainly due to a sharp rise in loans of Rs. 29.30 Cr, along with a slight reduction in owners funds because of losses during the year.
Operating Profit Margin (%)	84.05%	84.31%	-0.31%	N.A.
Net Profit Margin (%)	(2.48%)	6.68%	-137.09%	The ratio has turned negative due to current year losses, mainly arising from increased direct costs etc.
Return on Net Worth (%)	23.92%	18.77%	27.43%	Return on Net Worth increased from 18.77% to 23.92% primarily due to a decrease in the average net worth during the year. The change in the net worth base resulted in an increase in the ratio despite the lower profitability during the year.
Return on Capital Employed (%)	(1.17%)	10.44%	-111.17%	The decline is attributable to negative EBIT in the current year, reflecting reduced operational efficiency and profitability despite increased capital employed.

Resources and Liquidity

As at March 31, 2026, the Companys total equity (net worth) stood at Rs. 146.56 crore, down from Rs. 153.14 crore in FY25. Total debt (long-term and short-term borrowings) stood at Rs. 46.76 crore, resulting in a debt-to-equity ratio of 0.32x — remaining well below 1.0x and indicative of a conservatively leveraged balance sheet even in a challenging year.

Cash and cash equivalents at the end of FY26 stood at Rs. 18.30 lakhs (approximately Rs. 0.18 crore), a marginal decline from Rs. 20.88 lakhs at the end of FY25. However, the Company maintained fixed deposits (bank balances) of Rs. 1,509.70 lakhs (Rs. 15.10 crore), providing available liquidity reserves. The total liquid resources of approximately Rs. 15.28 crore provide a buffer against near-term working capital needs.

The Companys investment in CWIP of Rs. 32.64 crore reflects meaningful capacity-building investments that, once commissioned, are expected to enhance production capabilities and support revenue recovery. The capital expenditure cycle and the deployment of the long-term borrowings raised during FY26 are calibrated to support the Companys operational ramp-up in FY27 and beyond.

Segment-wise Business Performance

The Company is engaged in the business of manufacturing of plastic and home d?cor products. The Company does not have more than one reportable segment in terms of Ind AS 108 — Operating Segments, and hence segment-wise reporting is not applicable. All operations are conducted from the Companys integrated manufacturing facility at Veraval (Shapar), Rajkot, Gujarat.

Within its unified business, the Company serves global markets across seven product categories — bath area, kitchen and dining, home d?cor, storage and organisation, fitness and lifestyle, outdoor and utility, and customised products — catering to a geographically diversified customer base across 24 countries. Export revenues continue to constitute the substantial majority of total revenues, with key markets in the United States, Europe and Australia.

RISKS AND CONCERNS

Like every business, the Company faces risks — both internal and external — in the conduct of its day-to-day operations and in the pursuit of its longer-term objectives. The Company has established a risk management framework wherein risks are identified, assessed, analysed and mitigated to acceptable levels within the organisations risk appetite. Risk registers are reviewed periodically.

The following risks and concerns are considered material for FY26 and the near-term outlook:

Revenue Concentration and Customer Risk

Despite the strategic diversification of its customer base in recent years — reducing IKEAs revenue contribution from approximately 95% in FY20 to approximately 34% in FY24 — the Company remains exposed to volume dependence on a limited set of large global retail customers. Any shifts in procurement strategy, sourcing geography preferences, or inventory management practices by key customers can materially impact quarterly revenues, as evidenced by the Q3-Q4 FY26 performance. Continued diversification of the customer base is a strategic imperative.

Input Cost and Raw Material Risk

ESFLs core raw materials — EVA, LDPE, PEVA and other petrochemical derivatives — are linked to crude oil price movements and global polymer supply-demand dynamics. Elevated or volatile raw material prices compress gross margins, particularly when the Company is unable to immediately pass through cost increases to customers operating under fixed-price contractual frameworks. While the decline in material costs in FY26 was favourable in isolation, the adverse inventory dynamic overwhelmed this benefit.

Foreign Exchange Risk

Given that exports constitute the substantial majority of revenues and are principally denominated in USD and EUR, the Companys financial performance is sensitive to currency movements. Appreciation of the Indian Rupee against major export currencies compresses revenue in rupee terms and can also affect the competitiveness of Indian suppliers relative to Chinese, Thai or Vietnamese alternatives. The Company uses forward contract derivatives to partially hedge foreign exchange exposure; however, residual mark-to-market impacts remain.

Competition Risk

The global plastic home furnishing and accessories market is characterised by intense competition, particularly from low-cost manufacturers in China, Vietnam and other Southeast Asian countries. These manufacturers benefit from lower labour costs, scale advantages and, in some cases, government export incentives. ESFL differentiates through product quality, design customisation, sustainability credentials and its established relationships with global retailers — but competitive pressure on pricing and market share remains a constant risk.

Inventory and Working Capital Risk

The significant inventory build-up in FY26 (ending inventory of Rs. 88.98 crore against revenues of Rs. 163.05 crore — an inventory-to-revenue ratio of 54.6%) represents a material risk. Elevated inventories tie up working capital, attract financing costs, and create the risk of write-downs if demand does not recover sufficiently. Disciplined inventory management and demand-aligned production planning will be critical to working capital normalisation in FY27.

Labour and HR Risk

Employee benefits expense increased by 21.74% in FY26 to Rs. 29.72 crore, reflecting additions in headcount and compensation revisions. With a direct workforce of approximately 1,195 employees as at FY25, the Companys cost base is partially fixed in nature. The inability to flex costs sufficiently in response to the H2 FY26 revenue decline amplified operating losses. In addition, the Government of Indias notification in respect of the Labour Codes (Code on Wages 2019, Industrial Relations Code 2020, Social Security Code 2020 and Occupational Safety, Health and Working Conditions Code 2020) may have financial implications for employee benefit obligations once effective dates and detailed rules are notified.

Interest Rate Risk

The Company increased its debt levels in FY26, with total borrowings rising to Rs. 46.76 crore from Rs. 17.46 crore in FY25. While the debt-equity ratio remains moderate at 0.32x, rising interest rates or tightening of credit availability could increase financing costs and impact cash flows. The Company monitors its debt-equity profile and interest coverage metrics to ensure financial flexibility is maintained.

Credit Risk

ESFL manages credit exposure through a defined credit policy covering credit limit approvals, financial health assessments of customers, and rigorous follow-up on receivables. The significant improvement in debtor turnover in FY26 (from 8.02x to 14.13x) and the reduction in trade receivables (from Rs. 23.78 crore to Rs. 11.53 crore) reflect active management of this risk during a challenging year.

OPPORTUNITIES:

Growing Global Home Furnishing Market

The global home furnishing and home improvement market is on a robust multi-year growth trajectory, driven by rising urban populations, growing middle-class aspirations, and accelerating e-commerce penetration. The decorative plastics sector is projected to grow from USD 25.45 billion to USD 37.12 billion by 2033 — a 5.5% CAGR — representing a substantial and expanding addressable market for ESFLs products.

Eco-Friendly and Sustainable Products

Increasing regulatory and consumer pressure in developed markets — particularly the EU, UK and North America — for sustainable, recyclable and low-VOC products is creating a premium differentiation opportunity for suppliers like ESFL with certified, environmentally responsible manufacturing capabilities. The Companys ISO 9001:2015 certified and sustainability-oriented plant positions it well to capture this opportunity, particularly as large retailers face their own ESG commitments under which supplier sustainability credentials are increasingly scrutinised.

Technology Trends

- Innovation in raw materials such as nano-composite reinforcing agents and bio-degradable polymers

- Plastics are progressively replacing wood, metals, natural rubber and other materials in numerous household applications

- Advanced manufacturing technologies · including automation, precision moulding and digital quality controls · are enabling Indian manufacturers to compete with higher-value-added products

Customer and Category Diversification

Having reduced IKEA concentration from ~95% to ~34% over four years, ESFL is well on track to build a diversified customer portfolio across multiple global retail and home improvement chains. Further penetration with existing global accounts, addition of new customers in underpenetrated regions (e.g., Japan, Middle East, Latin America), and adjacent product category development represent significant growth levers for the medium term.

Government Support for Plastics Exports

Government of India initiatives including PLEXCONCILs USD 25 billion export target by 2027, ongoing FTA negotiations with the UK, EU and USA, and the Make in India manufacturing promotion framework provide a supportive policy tailwind for Indian plastics exporters.

THREATS

- Intense competition from low-cost Chinese, Vietnamese and other South-East Asian manufacturers benefiting from scale and cost advantages

- Volatility in crude-linked raw material prices (EVA, LDPE, PEVA) affecting gross margins

- Rupee appreciation against USD and EUR compressing export realisations in rupee terms

- Regulatory changes in key export markets, including evolving single-use plastics regulations and extended producer responsibility frameworks

- Concentration risk in a limited number of large global retail customers whose procurement decisions can materially affect quarterly revenues

- Attraction, retention and development of skilled human capital in a competitive labour market

- Environmental challenges · growing scrutiny of the plastics industrys environmental footprint requires continued investment in sustainable materials and processes

- Macroeconomic uncertainty in key markets · inflationary pressures and subdued consumer sentiment in the US and Europe affecting discretionary home furnishing spending

INTERNAL CONTROL SYSTEMS AND ADEQUACY –

The Company has implemented proper and adequate systems of internal control designed to ensure that all assets are safeguarded and protected against loss from any unauthorised use or disposition, and that all transactions are authorised, recorded and reported correctly in a timely manner. The internal control framework encompasses:

- Financial and operational controls across revenue recognition, purchase authorisation, inventory management, payables and receivables

- Information technology governance and data security protocols

- Compliance monitoring covering the Companies Act 2013, SEBI LODR Regulations, tax laws, labour regulations and environmental norms

- A risk-based internal audit programme conducted by M/s. Savjani & Associates, Chartered Accountants, re-appointed for FY27

The Audit Committee of the Board of Directors, comprising Independent Directors, reviews the internal control system, significant audit findings, and their impact on the Companys financial reporting and operational performance. Cost audit for FY26 is conducted by M/s. Sagar M. Kapadiya & Co., Cost Accountants, who have been re-appointed as Cost Auditors for FY27.

The Company has voluntarily adopted Ind AS in FY26, which has enhanced the rigour of its financial reporting standards and brought it in line with globally accepted accounting practices. This transition itself required a comprehensive review and strengthening of accounting policies, estimates and disclosures — further reinforcing internal control adequacy.

HUMAN RESOURCES

The Companys HR philosophy is to establish and build a high-performing, values-driven organisation, where every employee is motivated to perform to their fullest capacity; contribute to individual excellence; and help the Company consistently deliver quality products to its global customers.

As at March 31, 2026, the Company provided direct employment to approximately 1,142 employees across manufacturing, quality, design, sales, logistics and support functions at its Veraval (Shapar) facility. The Companys workforce-intensive nature — with significant skilled and semi-skilled labour in manufacturing operations — makes human capital development and retention a core strategic priority.

During FY26, employee benefits expense increased to Rs. 29.72 crore from Rs. 24.41 crore in FY25 (a 21.74% increase), reflecting wage revisions and headcount additions in line with expanded capacity investments. The Company continues to invest in skill development, on-the-job training and productivity enhancement programmes for its workforce.

Industrial relations have remained cordial and satisfactory. The Company proactively monitors developments relating to the four Labour Codes enacted by Parliament (Code on Wages 2019, Industrial Relations Code 2020, Code on Social Security 2020, and Occupational Safety, Health and Working Conditions Code 2020) and will evaluate and recognise the financial impact in the period in which the relevant provisions become effective and can be reliably measured.

OUTLOOK

The medium-term industry landscape for the decorative plastics and home furnishing sector continues to present a favourable structural opportunity for Essen Speciality Films, buoyed by global urbanisation, rising consumer aspirations, and the expansion of organised and digital retail channels. ESFL, with its established global client relationships, diversified product portfolio, Two-Star Export House recognition, and ISO 9001:2015 certified manufacturing, is fundamentally well-positioned to participate in this secular growth.

However, FY26 was a year that demanded honest introspection. The sharp H2 FY26 performance deterioration — with Q4 operating margins falling to a deeply negative (35.46%) and a full-year net loss of Rs. 4.04 crore — underscores the need for decisive management action on multiple fronts in FY27:

- Demand recovery and order pipeline restoration: Rebuilding and deepening order books with existing key customers, particularly IKEA, and accelerating diversification to new accounts and geographies to prevent revenue concentration risks from manifesting again

- Inventory normalisation: Disciplined reduction of the current elevated inventory levels (Rs. 88.98 crore) through demand-aligned production planning, working capital management and targeted liquidation of slow-moving stock

- Cost structure optimisation: Realigning the fixed cost base · particularly employee costs and other expenses · to the current revenue run-rate, while preserving capabilities critical for the expected recovery

- Capacity investments: The Rs. 32.64 crore CWIP and long-term borrowings raised in FY26 signal investment in future capacity. Timely commissioning and productive deployment of these investments will be key to supporting volume growth in FY27

- Ind AS transition benefits: The Companys first full year of Ind AS-compliant reporting in FY26 lays the foundation for enhanced credibility and comparability in financial disclosures, supporting investor and lender confidence

Export-led growth remains the central pillar of ESFLs long-term strategy. PLEXCONCILs target of USD 25 billion in plastic exports by 2027, potential FTA benefits with the UK and EU, and the Companys established presence with Fortune 500 global retailers provide a supportive external framework. Internally, the Companys focus on ESG-compliant manufacturing, product innovation (including eco-friendly recyclable materials), and deepening customer partnerships positions it to benefit from the premiumisation trend in home furnishing globally.

The Companys balance sheet — with net worth of Rs. 146.56 crore, a debt-equity ratio of 0.32x and available liquidity reserves — provides adequate financial resilience to navigate the near-term recovery phase. The Board and management remain committed to delivering sustainable long-term value to shareholders, employees and all stakeholders of Essen Speciality Films Limited.