Hindustan Foods Ltd Management Discussions

ECONOMIC OVERVIEW Global Economy

In CY 2025, the global economy is charting a course of cautious resilience amidst evolving macroeconomic realities. As outlined in the International Monetary Funds (IMFs) April 2025 World Economic Outlook, global GDP growth is forecast to ease to 2.80%, following a 3 30% expansion in CY 2024 While this reflects a pace below pre-pandemic averages, this also demonstrates measured progress rather than contraction and a phase defined by recalibration not retreat. This moderated momentum stems from a complex mix of global dynamics. Rising geopolitical and trade frictions, policy uncertainty across key economies, and dampened consumer confidence, especially in developed nations, converge to render a detrimental impact on growth prospects. Even so, the broader economic landscape continues to firmly adapt in CY 2025, gradually embracing the long-term structural transformations that are redrawing the trajectories of global growth

2.80% Growth of Global Economy Projected in CY 2025

Regional Economic Performance United States

The US economy is on track to expand by 1.80% in CY 2025, as the delayed effects of sustained monetary tightening and a new wave of trade protectionism begin to take hold. The rolling out of sweeping tariffs in early CY 2025 - targeting key trading partners, including China, Canada, India and Mexico - has driven the effective tariff rate to its highest point since 1909, marking a significant shift in trade policy dynamics. These measures are projected to add nearly 1 percentage point to inflation, keeping price growth stubbornly elevated at 3.00%. At the same time, signs of fatigue are emerging in domestic consumption, while the manufacturing sector continues to face headwinds from high input costs and persistent global supply chain disruptions

China

Chinas growth trajectory is expected to ease to 4.00% in CY 2025, as the worlds second-largest economy continues its delicate economic transition towards domestic consumption amidst a sluggish global demand. This structural recalibration is taking shape against the backdrop of persistent muted inflation, with deflationary forces resurfacing, highlighting the fragility of household and business demand. Financial strain within the real estate sector continues to pose systemic risks, deepening concerns around credit market stability and the resilience of shadow banking entities

Euro Area

The Eurozone remains on a path of soft recovery, with CY 2025 growth projected at a modest 080% Subdued domestic demand, deteriorating export competitiveness, and continued geopolitical uncertainties - including rising political instability in major economies like Germany and France - are undermining investor confidence. Meanwhile, challenges surrounding energy security and the pace of supply diversification continue to hinder the Blocs ability to regain economic traction.

Emerging Markets and Developing Economies (EMDEs) Across EMDEs, growth is broadly decelerating in CY 2025, with sharp slowdowns evident in countries such as Brazil, Mexico, China, South Africa, Argentina, Hungary, Colombia, and Turkey Mounting debt loads and weakening currencies are intensifying inflationary pressures and constraining the policy space for central banks. These domestic vulnerabilities, compounded by tightening global financial conditions and eroding investor sentiment, are aggravating macroeconomic fragilities, increasing the risk of capital outflows and policy missteps

Amidst persistent geopolitical friction and a renewed tilt towards protectionist trade regimes, deeper structural shifts are reshaping the global economic landscape. The CY 2025 World Economic Outlook signals a gradual but steady retreat in global inflation, marking a broader recalibration of macroeconomic conditions. Following a peak of 6.80% in CY 2023, global inflation eased to 5.90% in CY 2024 and is projected to decline further to 4.50% in CY 2025. This cooling trajectory reflects an effective convergence of easing food and energy prices and the ongoing impact of aggressive monetary tightening, especially across advanced economies, where inflation targets now appear within reach. However, this narrative is far from uniform In emerging markets and developing economies (EMDEs), inflationary pressures continue to linger, driven by currency volatility, structural supply constraints, and more limited policy flexibility.

OUTLOOK

As the global economy adjusts to a world redrawn by friction, fragmentation, and flux, a new era of international coordination is emerging - driven by pragmatic, issue- specific collaboration Within this shifting terrain, targeted reforms and renewed multilateral engagements are gaining momentum as key instruments for restoring stability and resilience. Frameworks like the G20s Common Framework for Debt Treatments are helping advance more predictable and orderly sovereign debt restructuring for vulnerable economies, offering critical support in navigating mounting fiscal stress. Simultaneously, central banks in advanced economies are adopting a more cautious and data- dependent approach to interest rate adjustments, as the focus shifts from aggressive tightening to stability-oriented fine-tuning In emerging markets, macroprudential policies are being strengthened to better manage capital volatility and external shocks. Trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) are reconfiguring global supply chain networks and accelerating regional integration. Collectively, these developments reflect a reorientation of the global economic order - towards resilience, inclusiveness, and strategic alignment for a more lasting recovery over the medium term

Indian Economy

Amidst an increasingly complex global economic landscape, India continued to chart a steady and resilient course, steered by structural strength and policy foresight The country recorded a robust real GDP growth rate of 6.50% in FY 2024-2025, reflecting the resilience and adaptability of its economic framework. Despite persistent global challenges, including trade frictions and tariff realignments, India firmly maintained a steady growth path. This sustained performance highlights the countrys ability to absorb external pressures through agile policymaking and a forward-looking economic strategy. The growth narrative is supported by sound domestic consumption, which remains the primary engine of economic activity. Within this, rural demand emerges as a critical lever, buoyed by favourable agricultural performance that has boosted rural incomes and spending capacity

6.50% Growth of Indian Economy in FY 2024-2025

Complementing this momentum, Indias macroeconomic fundamentals remain sound, supported by a consistent policy commitment to build long-term competitiveness. The rapid adoption of digital infrastructure through initiatives like Digital India and the Unified Payments Interface (UPI) significantly improved operational efficiency, enhanced governance transparency, and fortified financial inclusion. At the same time, large-scale infrastructure programmes such as the Gati Shakti National Master Plan and the Bharatmala project are transforming physical connectivity and logistics networks, strengthening the backbone of the economy. Together, these high-impact initiatives reflect a purposeful and future-ready development agenda that positions India for sustained economic leadership in a rapidly evolving global order.

Indias headline inflation continued its downward trajectory, with the Consumer Price Index (CPI) averaging 4.60% in FY 2024-2025 - the lowest annual print since FY 2018-2019. This moderation marks a decisive shift towards price stability, following a prolonged phase of elevated price levels observed in recent years, particularly during the global supply chain disruptions between CY 2021 and CY 2025. During that period, price pressures consistently breached the Reserve Bank of Indias (RBI) target range. The current decline highlights the effectiveness of the RBIs calibrated monetary tightening and the Governments disciplined fiscal approach. Together, these measures contributed to restoring macroeconomic balance and anchoring inflation expectations.

I Indias Consumer Price Index in FY 2024-2025

Infrastructure investment continues to propel Indias economic journey, reflecting the Governments firm focus on building long-term productive capacity and enabling equitable growth. Strategic sectors such as railways, highways, urban redevelopment, and water and sanitation remain key to this ambition, driving both connectivity and social impact at scale This sustained emphasis on capital expenditure significantly bolstered logistics and expanded access to essential public services, including electricity and clean water, for households across the country. Flagship programmes such as the Jal Jeevan Mission (JJM) and the PM Gati Shakti Master Plan are playing stellar role in narrowing the rural-urban divide, facilitating the transformation of Tier-ll and Tier-Ill cities into emerging hubs of economic activity.

In alignment with this vision, the Government earmarked Rs. 11.21 lakh or for capital expenditure in FY 2025-2026, representing 3.10% of GDP. This marks an increase from the previous years outlay of Rs. 11.11 lakh cr and highlights the priority placed on infrastructure-led growth. Complementing this public investment push is a sharpened focus on monetising existing public assets through a revamped Asset Monetisation Plan, alongside the rollout of a structured three-year Public-Private Partnership (PPP) project pipeline to enhance private sector participation in critical sectors. These coordinated measures are designed to unlock efficiencies and fortify Indias infrastructure ecosystem, laying the foundation for broad-based, durable economic progress.

Outlook

Indias economic trajectory continues to be shaped by the bold and aspirational roadmap of Viksit Bharat @2047 - a long-term national vision to transform the country into a fully developed economy by the centenary of independence. At the core of this vision lies the target of becoming a USD 30 Tn economy by CY 2047, driven by inclusive growth, technological advancement, and infrastructure-led transformation. The projected real GDP growth of 6.50% for both FY 2025-2026 and FY 2026-2027 is a bold step in this direction, reaffirming the underlying macroeconomic resilience and the strength of policy continuity This forward momentum is being driven by a favourable combination of strong domestic demand, accelerated digitalisation, and ongoing structural reforms - all strengthening the foundation of a more agile, competitive, and future-ready economy. ^I

UAD 30 Tn Projected Size of Indian Economy CY 2047

INDUSTRY OVERVIEW FMCG Industry

Indias Fast-Moving Consumer Goods (FMCG) sector, accounting for ~3% of GDP and employing close to 3 mn people, remains a critical pillar of economic growth and livelihood generation. As the fourth largest contributor to the countrys GDP, the sector remains closely aligned with consumption-led growth. In FY 2024-2025, the sector witnessed measured progress amidst a cautious consumption environment. Rural markets remained the primary growth lever, backed by deeper market penetration, expanding retail networks, and a growing preference for affordable product offerings. Urban demand, however, trailed in comparison, as discretionary spending continued to be subdued against a backdrop of persistent economic uncertainty

-3% FMCG Sectors Contribution to Indias GDP

3 Mn People Employed in FMCG Sector

One of the key challenges during the year was persistent food inflation, which placed significant pressure on mass-market urban consumption. However, easing input costs, such as palm oil and crude derivatives, towards the end of FY 2024-2025 offered a degree of relief, enabling FMCG companies to recalibrate pricing strategies and protect margins Notably, premium and discretionary product segments, along with rural-focused FMCG brands, demonstrated greater resilience in the face of macroeconomic pressures. In contrast, seasonal portfolios, particularly winter-related goods, suffered due to an unusually delayed and milder winter season

Rural FMCG Sales

Rural India reaffirmed its strategic importance to the FMCG sector in FY 2024-2025, delivering growth that clearly outpaced their urban markets This sustained rural resilience is the outcome of multiple structural enablers, including a well-timed and evenly distributed monsoon, robust crop yields, and a calibrated increase in Minimum Support Prices (MSP) for key agricultural commodities. Collectively, these factors boosted rural incomes and purchasing power, setting the stage for increased consumer demand.

Government welfare initiatives such as the Pradhan Mantri Awaas Yojana (PMAY-G) and the Pradhan Mantri Gram Sadak Yojana (PMGSY) played a stimulative role in shaping rural consumption by improving housing infrastructure and connectivity. These Focussed endeavours, while improving access to goods and services, also contributed to the structural transformation of rural demand. As a result, consumption patterns in rural areas are evolving, with a growing appetite not only for essential goods but also for premium and value-added products - signalling a more aspirational rural consumer.

Despite macroeconomic headwinds like persistent inflation and volatility in input costs that have put pressure on margins, rural markets continued to demonstrate resilient demand dynamics. Core consumption categories such as edible oils, packaged atta, and spices remained the key drivers of growth, reflecting sustained demand despite the ongoing challenge of food inflation. Traditional trade channels, especially kirana stores, continue to serve as the backbone of rural retail. However, the steady rise of modern trade, e-commerce, and quick commerce platforms beyond urban centres is reshaping access and widening consumer choice in semi-urban and rural pockets

For FMCG companies eyeing long-term growth in India, rural markets have moved from being a strategic option to a business imperative With the majority of Indias population residing in villages, future growth trajectories must be steered through rural engagement. Success in the rural landscape demands more than just product placement, it calls for robust trust-building, tailored innovation, and deep cultural sensitivities to the local ethos Companies that nvest in understanding rural aspirations, enhance last-mile connectivity, and deliver value-driven solutions will be best positioned to unlock the next wave of sustainable growth in the Indian FMCG sector

Outlook

After a period of sluggish growth, Indias FMCG sector is poised for a moderate rebound in FY 2025-2026 According to Crisil Ratings, revenue growth is expected to improve to 6-8% in FY 2025-2026, up from the 5-6% estimated for FY 2024-2025.

5-6% Estimated Revenue Growth of FMCG Sector in FY 2025-26

This rebound will be supported by improving urban sentiment and sustained rural resilience, backed by a favourable policy environment and easing macroeconomic pressures. Urban consumption, which was constrained by elevated inflation and economic uncertainty, is gradually gaining momentum. Easing food inflation, lower interest rates, and tax relief measures announced in the Union Budget are helping revive consumer sentiment. At the same time, rural demand is projected to remain stable, aided by continued Government spending on welfare programmes, a potentially good monsoon, and an upward revision in Minimum Support Prices (MSP) for key crops.

Volume growth in the range of 4-6% is anticipated, reflecting a balanced demand revival across both urban and rural markets. Crisil Ratings also highlighted that pricing actions will play a key role in driving FY 2025-2026 revenue growth, contributing approximately 2 percentage points As input costs for critical raw materials, including palm oil, coffee, copra, wheat, and tea continue to remain elevated, FMCG companies are expected to pass on some of these cost pressures to consumers. This sets the stage for a strategic price increase in select essential categories, particularly in soaps, biscuits, hair oils, and beverages, helping firms protect margins while maintaining competitiveness in a cautiously recovering market

Digital transformation is emerging as a critical enabler of reach, agility, and consumer engagement, expanding FMCG companies footprint into Indias hinterlands. With internet penetration on track to reach 1 Bn users by CY 2025, digital platforms are reshaping rural access and redefining purchase behaviour. Online platforms are increasingly becoming the gateway to consumers in remote areas, offering a cost-effective and scalable solution for market penetration. By CY 2030, 40% of all FMCG purchases in India is expected to take place online, with e-commerce accounting for an 11% share of total sectoral sales, highlighting the irreversible shift towards digitally enabled consumption

Structural economic reforms, including the Goods and Services Tax (GST) and demonetisation, have also laid the groundwork for long-term formalisation of the economy. GST alone is expected to contribute an additional USD 15 Bn annually to Indias economy. Together, these developments are streamlining the supply chain, improving operational efficiency, and driving consistent demand across both urban and rural markets. As India transitions into a more digitally connected and economically integrated consumer market, the conducive business environment is set to enhance the overall performance of the FMCG sector.

40% FMCG Purchases Expected to be Online in CY 2030

11% Expected Contribution of E-commerce to Total FMCG Sales in CY 2030

Growth Drivers

Rising Disposable Incomes

The upward trajectory of disposable incomes continues to be a structural catalyst for the FMCG sectors growth in India. This rise is broadening consumer appetite for a wide range of products, from daily essentials to personal care and durables. The Union Budget 2025-25 amplified this momentum through progressive fiscal measures, including the proposed increase in the basic income tax exemption limit to Rs 4 lakhs and eliminating tax liability for individuals earning up to Rs. 12 lakhs annually under the new tax regime. These interventions are expected to provide significant tax relief, augment household liquidity, and translate into stronger consumption across urban and rural markets alike

Indias Demographic Profile

Indias youthful demographic stands as a powerful engine of growth for the FMCG sector. With a median age of just 29 8 years in CY 2024, significantly younger than major economies like China and the US, the country boasts one of the worlds most vibrant and future-facing consumer segments. This digitally savvy, brand-conscious, and upwardly mobile generation is driving demand for convenience, innovation, and quality across products categories As this cohort accelerates urbanisation and redefines lifestyle aspirations, its influence is reshaping market dynamics and creating fertile ground for sustained growth in the sector.

(Source: The World of Factbook, Central Intelligence Agency (CIA), ESCAP)

MSMEs as a Vital Engine Indias Micro, Small, and Medium Enterprises (MSMEs) remain integral to the resilience, responsiveness, and inclusivity of the FMCG ecosystem, by fostering innovation, offering cost-effective production, and ensuring agile supply chains. With over 53 mn MSMEs employing more than 113 mn people in CY 2024, accounting for nearly 40% of the national workforce, this sector plays a pivotal role in driving demand, enabling last-mile distribution, and supporting localised manufacturing Having contributed around 30% to Indias GDP and 45% of its manufacturing output in CY 2024, MSMEs are essential to ensuring scalability and speed in a highly competitive FMCG landscape

Retail Industry Expansion

Indias retail sector continues to act as a powerful growth multiplier for the FMCG industry. As one of the most dynamic and fast-expanding segments of the economy, retail accounted for over 10% of Indias GDP and employed approximately 8% of the workforce in CY 2024. Ranked as the fifth-largest global retail destination, India offers immense scale and reach for FMCG brands. According to a recent analysis by the Boston Consulting Group (BCG), Indias retail market is projected to reach an impressive USD 2 Tn by CY 2032. This expansion, fuelled by the rise of organised retail, e-commerce, and digital payment systems, is enabling FMCG companies to broaden market reach, deepen consumer connect, and unlock consistent top-line growth

The FMCG sector is undergoing a fundamental shift, as digital transformation reshapes the way companies operate, engage, and compete. As part of this changing paradigm, Industry 4 0 technologies, including loT, artificial intelligence, and big data analytics, are being embedded across the entire value chain, from manufacturing to consumer engagement. These innovations are resulting in smarter production systems, real-time inventory tracking, predictive maintenance, and agile supply chain management. Additionally, digital platforms are streamlining marketing efforts, personalising customer experiences, and lowering operational costs, delivering greater efficiency, responsiveness, and precision. This digital pivot is amping up competitiveness and enabling FMCG companies to navigate complexity with accelerated speed and adaptability.

Importance of Sustainability

Sustainability has evolved into a core business priority, redefining the principles that guide product development, operational strategy, and value delivery across the FMCG industry. With environmentally conscious consumers exerting increasing influence, companies are proactively investing in eco-friendly packaging, emissions reduction, circular supply chains, and ethical sourcing Not anymore optional, these green initiatives effectively align with evolving consumer values - forging long-term brand equity, meeting regulatory expectations, and inculcating lasting resilience in a rapidly changing business environment.

Increasing Investments

The FMCG sector is benefitting from sustained investor interest and a progressive policy imperative. Recent regulatory reforms aimed at easing FDI norms led to substantial capital inflows, enabling companies to scale operations, enhance supply chain efficiency, and create new employment opportunities. Simultaneously, Government initiatives aimed at strengthening key sectors like MSMEs, agriculture, and education are generating downstream demand for FMCG products across diverse consumer segments. This convergence of investment momentum and inclusive policy action is bolstering the sectors posture for long-term, inclusive growth.

Government Initiatives

Policy interventions remain instrumental in shaping the growth trajectory of Indias FMCG sector, creating an ecosystem that is more inclusive, efficient, and transparent. Landmark initiatives such as GST, Make in India, and Digital India collectively improved the ease of doing business, streamlined tax administration, and expanded digital and logistical infrastructure. These structural shifts lowered operational costs, benefiting both manufacturers and consumers On the social development front, flagship schemes like Jan Dhan Yojana and Ujjwala Yojana significantly boosted financial inclusion and improved household affordability, particularly in ruraland underserved geographies. These programmes broadened the consumer base and unlocked new avenues of demand for FMCG products. Moreover, regulatory measures around food safety, packaging, and labelling strengthened consumer trust - an increasingly critical differentiator for sustaining brand loyalty and market expansion. With consistent and effective execution, these policy initiatives have the potential to open new growth avenues and enhance the long-term resilience of the FMCG sector.

Shoe Wear Industry

Indias shoe wear industry, among the largest globally, is undergoing significant transformation in CY 2025, fuelled by growing consumer aspirations, rising brand orientation, and the rapid growth of organised retail. Supported by favourable Government policies and a growing middle class, the sector is evolving from unorganised, price-driven sales to more branded, lifestyle-oriented consumption

Valued at USD 26 Bn in CY 2024, the market is projected to grow more than three-fold, reaching USD 90 Bn by CY 2030. One of the key drivers of this expansion is the decisive consumer pivot towards non-leather segments, including sneakers, athleisure, and casual wear, which are expected to command nearly 75% of the total market by the end of the decade

Shoe Wear Industry Market Size in CY 2024

Indias young, style-conscious consumers, armed with increasing disposable incomes, is increasingly seeking footwear that blends fashion and functionality. This evolution, coupled with a decisive shift towards non-leather footwear, is being driven by a growing middle class, rapid urbanisation, and a strong tilt towards branded, casual, and lifestyle-oriented footwear. The athleisure and sports footwear segment, in particular, is gaining significant traction, reflecting heightened consumer focus on health, comfort, and wellness-led choices. Technology- integrated footwear, such as fitness tracking, is gaining ground to support active lifestyles. The Indian athletic footwear market was valued at USD 5 9 Bn in CY 2024 and is projected to exhibit a CAGR of 5.2% from CY 2025 to CY 2033, reaching approximately USD 9.8 Bn by the end of the forecast period.

USD 5.9 Bn Athletic Footwear Industry Market Size in CY 2024

The rapid expansion of E-commerce further democratised access, offering consumers a wide array of styles at competitive prices, even in Tier-ll and Tier-Ill cities As a result, Indian consumers are now building multi-functional footwear wardrobes, with distinct pairs for casual, formal, athletic, and occasion-specific needs. This trend is driving two-pronged amplification, including volumes and premiumisation, creating lucrative opportunities for both domestic and global footwear brands operating in Indias vibrant consumer market.

Sustainability is emerging as a defining narrative for the future of the footwear industry. With rising awareness about environmental impact, consumers are gravitating towards footwear that is eco-friendly and ethically produced. This shift is prompting brands to adopt green practices, incorporate recyclable materials, and enhance transparency across their supply chains

Outlook

India is taking significant strides to transform its leather and footwear industry into a global manufacturing powerhouse, aiming for a turnover of USD 90 Bn by CY 2030. Supporting this ambition is the Indian Footwear and Leather Development Programme (IFLDP), backed by

a Government allocation of Rs 1,700 cr. The initiative is geared towards building world-class infrastructure, offering targeted incentives and accelerating the modernisation of production capabilities across leather and footwear units. The IFLDP encompasses the development of integrated manufacturing clusters for leather footwear and accessories, bolstering institutional capabilities and amplifying the global visibility of Indian brands.

USD 30 Bn Projected Shoe Wear Industry Market Size in CY 2030

To nurture design excellence, the Government is collaborating with cutting-edge institutions such as CSIR- CLRI to set up state-of-the-art studios across the nation. Specialised courses in shoe and garment design are being introduced to build a skilled, future-ready workforce. By merging heritage craftsmanship with technological innovation, the Indian shoe wear industry continues to play a defining role in Indias industrial and economic progress, creating a solid foundation for future growth and global competitiveness.

Growth Drivers

Restricting Finished Shoe Imports

India is actively reshaping its footwear production landscape by downsizing reliance on finished footwear imports. This strategic thrust is accelerating domestic manufacturing, aided by the relative ease of scaling operations in this sector compared to more complex high-tech sectors. Both homegrown enterprises and multinational players are ramping up capacity, diversifying sourcing ecosystems and accelerating the transition away from overdependence on key import markets like China and Vietnam. This shift is strengthening Indias position as a self-reliant and scalable manufacturing base.

State-Level Participation for Regional Growth

Tamil Nadus leadership in footwear manufacturing, supported by a mature industrial ecosystem, skilled talent base, and sustained investor interest has set an inspiring precedent for other states. Building on this momentum, states like Uttar Pradesh, Haryana, Andhra Pradesh, and Telangana are actively positioning themselves as alternative manufacturing destinations. Competitive state-level policies, coupled with strong investor engagement and infrastructure development, are propelling the formation of regional clusters, boosting domestic capacity and generating employment at scale.

Design and R&D Hubs for Non-Leather Footwear

The sector is witnessing a decisive shift towards innovation- led growth, particularly in the non-leather footwear segment. Purpose-led R&D and design centres are enabling Indian brands to create globally relevant, differentiated products. These hubs are also spearheading the adoption of sustainable materials. With increased investment in future-leaning research, the industry is witnessing greater automation, more efficient production processes, and enhanced scalability, all of which are strengthening Indias position in international markets and fuelling export-led growth.

Strengthening Import Regulations under FTAs

Tighter enforcement of rules of origin under regional trade agreements such as the ASEAN FTA and SAFTA is proving instrumental in safeguarding the interests of domestic manufacturers. By preventing third-party circumvention, these regulations help in maintaining the integrity of preferential trade terms. Strategic trade compliance is emerging as a growth enabler, promoting fair competition and strengthening the position of local manufacturers. This, in turn, is enabling them to scale operations, enhance competitiveness, and access regional markets on more equitable terms, paving the way for sustainable industrial growth and greater integration into global value chains

Increasing Adoption of Technology The Indian footwear industry is increasingly embedding leading-edge technologies across the value chain to drive transformation. In manufacturing, automation and artificial intelligence (Al) are streamlining production processes, enhancing efficiency, and reducing costs. In the retail domain, digital tools such as augmented reality (AR)-based virtual try-ons are enhancing consumer engagement and convenience, facilitating the visualisation of products before purchase, a critical feature for the growing e-commerce space. This digital shift is positioning Indian players to meet evolving global standards and deliver superior customer experiences.

Ice Cream Industry

Indias ice cream industry is experiencing a robust growth trajectory, reaching a valuation of Rs. 268.0 Bn in CY 2024. With a projected CAGR of 16.7%, the sector is poised to hit Rs. 1,078.0 Bn by CY 2033. This surge is driven by rising disposable incomes, a growing appetite for indulgent treats, and a steady stream of innovative product offerings from leading brands. Furthermore, the rapid expansion of both online and offline distribution networks is enabling wider market penetration across urban and rural areas. As preferences evolve, the industry is transitioning from a seasonal category to a year-round indulgence, helping brands tap into diverse consumer segments and boost overall market share

Indian Ice Cream Industry Market Size (in Rs. Bn) 1,078.0

Beyond a growing demand from consumers, the ice cream industry is evolving towards a more sustainable and health-conscious future. Companies are increasingly embracing eco-friendly sourcing practices, energy- efficient production technologies, and natural flavouring alternatives to remain in step with shifting consumer values. The industrys influence extends well beyond its core, stimulating growth across allied sectors, including dairy, food processing, and agriculture, creating employment opportunities and strengthening export potential. Complementing this momentum, the Indian Government is actively supporting the ecosystem by driving domestic consumption and upgrading infrastructure across the supply chain. Moreover, policy initiatives are empowering stakeholders, including farmers, suppliers, cold storage providers, and retailers, positioning the industry for longterm, inclusive growth

Outlook

Indias ice cream industry is on a strong growth trajectory, with its market size expected to reach Rs 1,078.0 Bn by CY 2033. This surge is expected to be propelled by rising disposable incomes, evolving consumer tastes for indulgent and health-conscious options, and the rapid expansion of both traditional and modern distribution networks across urban and rural markets

Growth Drivers

Shifting Consumer Preferences

As incomes rise and palates evolve, there is a growing willingness to pay a premium for indulgent ice creams that present an appealing blend of unique flavours, superior ingredients, and richer taste experiences This trend has given rise to a new segment of high-end brands and boutique parlours that cater specifically to the demand for luxurious frozen treats.

Traditional flavours like vanilla and chocolate are now being replaced or reimagined by adventurous and global flavour profiles such as salted caramel, matcha green tea, tiramisu, cookie dough, and exotic fruits. This widening of flavour palate intensified competition within the sector, prompting brands to push the boundaries of innovation in flavour development, texture experimentation, and creative presentation.

Rising Health Awareness

A rising focus on wellness is transforming product development, with consumers ready to pay a premium for better-for-you alternatives that align with dietary goals. Ice creams with low-sugar, low-fat, and plant-based or vegan ingredients are gaining traction among health-conscious consumers. This is driving innovation in the form of dairy- free formulations and fortified ice creams infused with herbs, prebiotics, probiotics, and micronutrients. Innovative ingredient substitutions, such as replacing traditional skimmed milk powder with whey protein isolate (WPI), are enabling brands to enhance protein content without compromising texture or taste - a phenomena that is particularly appealing to vegetarian and protein-conscious consumers.

Growth in E-Commerce

The growing expansion of e-commerce and quick commerce channels is redefining access and convenience in the ice cream category With the rise in smartphone usage and digital adoption, consumers are increasingly turning to online purchases with the expectation of swift, temperature-controlled delivery. In this backdrop, several quick commerce platforms joined hands with top ice cream brands to offer near-instant delivery and best-in- class product freshness, making them especially popular during summer months and festive seasons.

Expansion of Retail and Cold Chain Infrastructure

Indias modern retail evolution, through supermarkets, hypermarkets, and convenience stores, along with major advancements in cold chain logistics, is significantly expanding the physical availability of ice cream across India. Simultaneously, significant investments in cold chain infrastructure are facilitating efficient storage, handling, and transportation of temperature-sensitive products like ice cream, maintaining quality and shelf life throughout the supply chain This reliability allowed brands to expand their product variety and distribution footprint across both urban and semi-urban markets, penetrating deeper into Tier-ll and Tier-Ill cities. With the Indian cold chain market expected to reach Rs. 3,79,870 cr. by CY 2028, the ecosystem is set to provide a robust backbone for scalable and reliable distribution, leveraging investments in cold storage, refrigerated transportation, and retail display solutions.

Beverages Industry

Indias beverage industry is charting a strong upward trajectory, reaching an estimated valuation of USD 75.01 Bn in CY 2024 With projections indicating a CAGR of 6.80% between CY 2025 and CY 2034, the industry is anticipated to touch approximately USD 144.82 Bn by CY 2034 This growth will primarily be driven by rising demand for functional beverages such as plant-based juices and health drinks. Accelerated by the rapid expansion of retail networks, innovative packaging solutions, and a growing consumer shift towards health-conscious consumption, the industry is evolving into a dynamic blend of convenience, nutrition, and lifestyle appeal.

Growth Drivers

Growth of Regional Brands

Regional beverage brands are emerging as powerful contenders in Indias diverse marketplace. By offering products tailored to local tastes and harnessing strong distribution networks, these brands are gaining ground, particularly in semi-urban and rural regions.

Surge in Instant Coffee Consumption

Indias Instant coffee segment is witnessing robust growth, especially among urban youth seeking quick, convenient beverage options. The introduction of flavoured variants such as vanilla, caramel, and hazelnut, coupled with premium blends, enhanced the appeal of instant coffee, contributing to the growing revenue of the Indian beverage market.

Shift towards Sustainable Packaging

Environmental sustainability is reshaping the future of the beverage industry, with packaging at the forefront of this transformation. Beverage companies are increasingly embracing eco-friendly practices, ranging from responsibly sourced ingredients to energy-efficient production and recyclable packaging. As sustainability remains a prime consideration for both consumers and manufacturers, these initiatives go a long way in mitigating environmental impact and strengthening brand image

OTC Pharmaceuticals Industry

Indias Over-the-Counter (OTC) pharmaceutical market is entering a new era of accelerated growth, propelled by a cultural shift towards preventive self-care, greater health consciousness, rising consumer confidence, and the rapid expansion of digital pharmacy platforms. As consumers increasingly seek accessible and affordable wellness solutions, the market is expected to grow from USD 7.09 Bn in CY 2025 to USD 9 22 Bn by CY 2030, with a CAGR of 5.39% during the forecast period

USD 9.22 Bn OTC Pharmaceuticals Industry Market Size by CY 2030

Consumers are increasingly opting for OTC medications to manage routine health concerns, drawn by their ease of access, both online and offline, coupled with affordability and time efficiency. The growing trend of self-medication, where individuals treat minor ailments without a doctors prescription, is gaining traction across the country.

Outlook

Indias OTC pharmaceutical market is poised for robust growth, driven by converging forces across regulatory imperatives, technological prowess, and infrastructural developments. A critical enabler of this trajectory will be the implementation of clearer and more standardised regulatory frameworks that govern the production, distribution, and sale of OTC drugs By enforcing stringent quality benchmarks, transparent labelling norms, and structured usage guidelines, these reforms aim to enhance consumer safety and product credibility. As a result, consumers will have greater trust in the efficacy and reliability of OTC products, while the market will benefit from reduced circulation of counterfeit and substandard medicines

Parallel to regulatory advancements, rapid strides in digital health technologies are transforming how Indians access and engage with OTC medications. The rising prevalence of mobile health apps, telemedicine platforms, and e-pharmacy services is making healthcare more decentralised, personalised, and accessible For millions, particularly in underserved or remote areas, these tools are opening a new window to seek virtual consultations, monitor health remotely, and purchase OTC products with ease. By bridging the gap between conventional healthcare services and self-care, digital innovation is promoting more responsible and informed self-medication practices.

Furthermore, the expansion of infrastructure in rural and semi-urban regions is unlocking fresh growth avenues for the OTC sector. Improved logistics, growing penetration of organised retail, and rising health awareness are accelerating OTC adoption beyond Indias urban centres. As the lines between wellness, prevention, and treatment continue to blur, more consumers across diverse socioeconomic backgrounds are set to gain access to essential self-care solutions, delivering greater public health outcomes.

Growth Drivers

Wider Access to OTC Drugs

OTC medications in India are now widely available across various retail channels, extending beyond conventional pharmacies to include general stores, supermarkets, and digital platforms The rapid growth of e-pharmacies has transformed the availability, making the purchase of non-prescription drugs more convenient and hassle-free than ever. This ease of access is accelerating the acceptance of self-care practices across urban and semi-urban regions.

Expanding Product Portfolio

Pharmaceutical companies are actively diversifying their OTC product offerings to address rising consumer demand. High-demand categories such as pain relievers, digestive aids, dermatological treatments, and immunity boosters are witnessing continuous product innovation. New product formats like effervescent tablets, topical gels, flavoured syrups, combination therapies, herbal supplements, and medicated creams are gaining favour for their usability, appeal, and differentiated experience.

Digital Transformation

Indias digital health revolution is reshaping the way consumers engage with OTC products. The rise of e-pharmacy platforms is streamlining product discovery, ordering, and doorstep delivery, saving time and offering unmatched convenience. These platforms are significantly improving the accessibility and distribution of OTC medications, especially benefitting those residing in remote areas, along with those facing mobility challenges. Unlike traditional brick-and-mortar stores with limited inventory, e-pharmacies offer a broader range of products and brands, enabling better consumer choice.

Government Initiatives

Government initiatives such as the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) are strengthening the OTC ecosystem by promoting access to affordable, high-quality generic medicines at significantly lower prices Through an expanding network of Janaushadhi Kendras, essential medications are made more affordable and accessible to millions, supporting wider adoption of self-care practices Such initiatives are reducing dependency on expensive branded drugs without compromising treatment quality

CONTRACT MANUFACTURING INDUSTRY

India is fast emerging as a preferred hub for contract manufacturing, drawing significant interest from global enterprises looking for a blend of efficiency, scalability, and cost optimisation Amidst rising cost pressures worldwide,companies across sectors are increasingly outsourcing operations to streamline resources and augment profitability. Given this context, India offers an attractive value proposition - cost-effective production capabilities, a large skilled workforce, and improving infrastructure

Market reports indicate a surge in demand for contract manufacturing services across sectors such as pharmaceuticals, electronics, consumer goods, and automotive. This momentum is further bolstered by Indias large and growing consumer base, coupled with an increasing expectation for faster, more flexible production cycles. In addition, the active involvement of manufacturing consultants and advisory firms is helping businesses navigate operational complexities, optimise processes, and meet international quality standards

Recognising the sectors strategic potential, the Indian Government permitted 100% Foreign Direct Investment (FDI) under the automatic route for contract manufacturing This progressive policy aims to open up new commercial opportunities and attract greater foreign capital by easing investment barriers, making India a more appealing destination for global companies seeking to expand their manufacturing operations As a result, in the wake of global supply chain realignments, particularly the US-China trade tensions, India is emerging as a viable and competitive alternative, offering favourable business conditions, policy support, and a large domestic market.

Technological innovation is playing a prime role in shaping the future of Indias contract manufacturing industry. Success in this space now depends on manufacturers ability to adopt and integrate cutting-edge digital solutions Technologies such as Artificial Intelligence (Al), Machine Learning (ML), 5G connectivity, and advanced computing are revolutionising the production landscape. These digital tools empower manufacturers to make data-driven decisions, optimise operations, improve cost efficiency, and enhance product quality, thereby positioning them to meet the evolving demands of modern consumers

Forward-leaning contract manufacturers that invest in these digital capabilities are well-equipped to respond to rapidly shifting consumer preferences and rising expectations around customisation, speed, and quality. As digital-savvy consumers demand more personalized and high-quaiity products, agility and tech adoption have emerged as decisive competitive differentiators

Moreover, this digital shift aligns with a broader industry trend - one that witnesses major consumer goods companies, both domestic and international, increasingly outsourcing production to third-party manufacturers.

This approach complements their core competencies and helps them scale quickly and respond to dynamic market demands In India, this outsourcing trend is further amplified by the rising demand for packaged consumer goods, positioning contract manufacturers as vital partners in enabling fast, efficient, and scalable production

Just like the FMCG industry, the contract manufacturing industry has evolved multi-fold over the years:

Phase I(The 1980s)	Phase II (The 2000s)	Phase III (Present Times)	Phase IV (The Future)
• Small Scale Industry (SSI) reservations	• Area-based reservations	• GST	• Global sourcing hub like pharma generics
	• Direct tax exemption	• One Country - One
• Tax exemptions for SSI	• Indirect tax exemption	Market • Changes in distribution network	• Explosion of small brands having no intent to invest in manufacturing facilities
		• E-commerce and modern trade leading to an explosion of small brands, seeking to avoid investing in manufacturing facilities	• Most product categories in India are duopolies or oligopolies, unlike in the US or Europe, which have various brands in each category
			• Investment in leading- edge production systems and supply chain integration
			• In-depth understanding of the preferences of Indias next major consumer segment and inculcating the ability to meet them
			• Increasing flexibility to produce in small batches

4. The commission included above is for FY 2024-2025 which will be paid during FY 2025-26.

5. Ms. Padmini Sekhsaria, though entitled to get the commission, opted to not take any commission from the Company for the Financial Year 2024-2025.

FAVOURABLE OPPORTUNITIES FOR CONTRACT MANUFACTURERS IN INDIA

As India cements its position as a global contract manufacturing hub, businesses across industries are increasingly collaborating with third-party manufacturers to streamline operations, reduce costs, and accelerate growth. The new-age contract manufacturers offer more than scale and efficiency; they bring strategic depth, technical acumen, and industry-wide insights that strengthen every stage of the value chain.

Technical Expertise and Cross-Industry Insights

Serving clients across a wide cross-section of industries, including consumer goods, pharmaceuticals, electronics, and packaging, Indian contract manufacturers are uniquely positioned to deliver specialised expertise. Their exposure to various production processes enables them to acquire deep technical insights, that in turn, equip them with the ability to identify inefficiencies, optimise workflows, and recommend design improvements early in the development cycle. Their proactive risk identification helps brands avoid costly design flaws and prevent investment losses.

Significant Cost Savings

Outsourcing production to contract manufacturers allows companies to significantly reduce production costs without compromising quality. By eliminating the need for capital-intensive investments in infrastructure and equipment, businesses can achieve leaner operations. In addition, enterprises save on labour costs and minimise the complexities of managing multiple suppliers, as contract manufacturers provide end-to-end production capabilities under one roof.

Superior Product Quality

Indian contract manufacturers are known for precision- led production processes, ensuring consistently superior product quality. Harnessing sophisticated technologies such as CNC machines, 3D printers, and high-accuracy tools for cutting, drilling, and milling, they deliver products that meet exacting standards. Backed by a team of experienced engineers and technicians, these manufacturers combine craftsmanship with technology to deliver functionally robust and visually refined products.

Scalable Production Capabilities

For startups and growing businesses, scaling production to meet rising demand can be challenging with limited resources. Contract manufacturers offer the flexibility and capacity to ramp up production in line with demand without compromising delivery timelines or operational stability. Their large-scale operations, established machinery, and workforce allow partners to respond swiftly and consistently to market fluctuations, and scale without disrupting existing operations

Regulatory Compliance and Industry Standards

Indian contract manufacturers are well-versed in both domestic and international compliance mandates . Whether navigating safety protocols, environmental regulations, or quality certifications, they help global brands sail through legal complexities smoothly. This ensures uninterrupted operations and facilitates smoother entry into foreign markets

Reduced Time-to-Market

Partnering with Indian contract manufacturers allows businesses to drastically compress product development lifecycles. With immediate access to ready-to-use infrastructure, skilled labour, modern equipment, and integrated supply chains, businesses can move from prototyping to production and market launch much faster This accelerated speed-to-market is a critical advantage in fast-moving industries where timing determines market leadership.

Local Supply Chain Connectivity

Indian contract manufacturers maintain deep-rooted supply chain linkages, ensuring reliable access to raw materials at competitive prices Their proximity to trusted local suppliers reduces transportation costs, shortens delivery timelines, and ensures consistent material availability. These factors are critical for efficient and uninterrupted production

THREATS

Rising Competition

The contract manufacturing industry is dynamic and increasingly competitive, driven by the rapid expansion of FMCG companies into new geographies and product categories. As businesses scale and diversify, they often

rely on an extended network of manufacturing partners, intensifying competition within the sector. In this evolving landscape, contract manufacturers must continuously pursue innovation, invest in sophisticated technologies, upgrade operational efficiency, and expand their capabilities to stay ahead. As the pressure to deliver cost-effective, high-quality, and scalable solutions is taking centre stage, manufacturers are seeking unique ways to maintain agility and meet client expectations across diverse markets.

Competition from the Unorganised Sector

Indias FMCG landscape is uniquely fragmented, comprising both large national players and a multitude of strong regional and unorganised entities. While national brands benefit from widespread distribution and recognition, they face persistent competition from smaller, region-specific players with sharp consumer insights, hyper-local reach, and price competitiveness, commanding strong loyalty in specific geographies Moreover, their agility and proximity to the end consumer allow them to compete effectively, even against larger, organised players, posing a substantial challenge to contract manufacturers aligned with national and multinational brands.

Intellectual Property (IP) Protection

Safeguarding intellectual property is a critical concern in contract manufacturing arrangements Without robust legal safeguards, there is a heightened risk of technology leaks, design theft, or process replication. To mitigate potential risks, businesses must embed robust IP protection clauses within contracts and enforce comprehensive nondisclosure agreements (NDAs). Additionally, partnering with reputable manufacturers known for their commitment to IP integrity and conducting thorough due diligence can further protect proprietary assets and reduce the risk of information leakage or misuse.

Ensuring Consistent Quality Control

Maintaining product consistency across outsourced manufacturing setups calls for disciplined oversight. Variations in quality, if gone unnoticed, can undermine brand credibility and consumer trust To mitigate this risk and maintain high standards, it is imperative for businesses to implement rigorous quality assurance frameworks that include scheduled factory audits, supplier evaluations, and compliance verifications. Clearly defined performance metrics and regular inspections help ensure that every

product batch aligns with the brands specifications before reaching the market.

Managing Supply Chain Risks

The global supply chain ecosystem remains vulnerable to a range of disruptions, arising from material shortages, logistical delays, and geopolitical tensions. Over-reliance on single sources leaves companies exposed to sudden shocks Diversifying suppliers, maintaining buffer inventories, and using real-time monitoring can help mitigate these risks and ensure operational continuity in an increasingly unpredictable environment

Enhancing Operational Transparency

Lack of visibility in operations can weaken coordination, impede efficiency, and increase the risk of delays across the value chain Implementing digital tools like ERP systems and real-time production tracking enhances transparency across the manufacturing process. Improved visibility enables faster, data-informed decisions and seamless collaboration with production partners

Why HFL for Contract Manufacturing

ndias contract manufacturing landscape is undergoing a structural transformation, propelled by the Make in India initiative and the rising demand from the FMCG sector As the industry emerges as a key lever of economic growth, it is playing an increasingly vital role in value creation, employment generation, and positioning India as a global manufacturing hub. At the forefront of this transformation is HFL (Our Company), recognised as one of Indias most diversified and agile contract manufacturers. Our strategic approach blends disciplined organic growth with calibrated inorganic expansion through targeted acquisitions. In doing so, we remain ahead of market shifts and efficiently cater to the evolving priorities of clients across sectors

At HFL, we offer an end-to-end manufacturing ecosystem supported by advanced infrastructure and seamlessly integrated backend services covering processing, packaging, warehousing, and logistics. This one-stop platform accelerates time-to-market and enhances operational efficiency, offering full-spectrum solutions for a broad spectrum of FMCG products. Moreover, it guarantees protection of clients intellectual property and ensures consistent, high-quality output. By outsourcing production to HFL, clients can redirect internal resources on innovation, brand building, and strategic growth.

Adaptive Business Model for Diverse Client Needs

We operate on a flexible, three-tier business model tailored to different customer requirements:

• Dedicated Manufacturing Facilities: Built to serve the exclusive needs of anchor clients with large production volumes

• Shared Production Units: Optimised for companies with moderate production needs, offering economies of scale

• Turnkey Private Label Solutions: Designed for emerging brands, enabling a quick go-to-market journey from concept to shelf

Excellence in Execution and Operational Efficiency

Our strength lies in execution. Leveraging extensive project management capabilities, we are able to scale operations rapidly, modernise existing infrastructure, and commission new production lines within aggressive timelines. This efficiency significantly reduces capital overheads, allowing brand partners to channel investments into growth and value innovation.

Expansive Product Portfolio and Strategic Partnerships

Our manufacturing footprint spans a broad spectrum of categories, including home & personal care, food & beverages, leather goods, mosquito repellents, ice cream, footwear and OTC pharmaceuticals. This breadth, combined with our ability to adapt swiftly to evolving consumer demand, positions us as a preferred manufacturing partner across domestic and international markets. We foster enduring client relationships built on trust, confidentiality, and quality Long-term contracts with clients provide revenue stability and reaffirm our position as a reliable and scalable partner with a growing global presence.

GROWTH DRIVERS FOR CONTRACT MANUFACTURERS

As a strategic extension of the FMCG value chain, the growth pattern of the contract manufacturing industry closely follows that of the broader FMCG landscape. Accordingly,

the structural tailwinds driving the FMCG expansion are equally relevant to the contract manufacturing ecosystem.

COMPANY OVERVIEW

Hindustan Foods Limited (HFL or Our Company or We) stands at the forefront of Indias contract manufacturing landscape, well-established as the countrys largest and most diversified FMCG contract manufacturer. With over three decades of industry stewardship, we thrive on a well-diversified, stable business model, bringing resilience to our operations and outlook. Our expansive portfolio spans key categories, including personal care, beauty and cosmetics, food & beverages, home care, health and wellness, leather and sports footwear, and pest control. Augmented by robust R&D capabilities, we continue to expand our formulation expertise across a wide range of FMCG products.

We have 28 top-of-the-line manufacturing facilities strategically located across India, allowing us to operate fully integrated plants that bring together sophisticated processing technologies, automated packaging lines, warehousing, and logistics infrastructure. Our in-house laboratories ensure stringent quality benchmarks, while dedicated product development centres foster continuous innovation. These capabilities empower us to deliver pace, consistency, and scalability - hallmarks of a trusted manufacturing partner.

FY 2024-2025 was a defining year in our evolution. We successfully entered and scaled across high-growth categories such as ice creams, OTC pharma, shoes, and beverages, showcasing our prowess in replicating excellence across new categories. This strategic diversification led to a structural evolution in our operating model, striking a more balanced mix between shared manufacturing infrastructure and dedicated long-term engagements. As a leading provider of end-to-end contract manufacturing solutions, we continue to serve a broad spectrum of domestic and international clients, delivering comprehensive, high-quality manufacturing services across multiple FMCG segments.

Financial Highlights

(Rs. in Cr)

Particulars	FY 2024-2025	FY 2023-2024	YoY Growth (in %)
Revenue from Operations	3,578.9	2,761.9	29.6
EBITDA	307.7	228.9	34.4
Profit After Tax	109.6	93.0	17.8
Basic Earnings per Share (Rs.)	9.51	8.23	15.5

Statement of Key Ratios

Types of Ratios	Explanation of Ratios	FY 2024-2025	FY 2023-2024	% Change
Inventory Turnover Ratio (Times)	Inventory Turnover measures how often a company sells and replenishes its inventory within a specific period. It is calculated by dividing the Cost of Goods Sold (COGS) by the average inventory during that time.	4.48	5.50	(18.5)
Current Ratio (Times)	The Current Ratio is a key liquidity metric that assesses a companys capacity to meet its short-term obligations, typically those due within a year. It is determined by dividing current assets by current liabilities.	1.45	1.26	15.1
Net Profit Margin (%)	Net Profit Margin indicates the percentage of revenue that remains as net profit after all expenses and taxes are deducted. It is calculated by dividing net profit after tax by total revenue (turnover).	3.08	3.38	(8.9)
Debtors Turnover (Days)	The Debtors Turnover Ratio is a financial metric that evaluates how efficiently a company manages credit sales and collects payments from customers. It is calculated by dividing total turnover by the average trade receivables during the period.	19.72	18.57	6.2
Return on Net Worth (%)	Return on Net Worth (RoNW) is a profitability indicator that reflects how effectively a company generates profit from its shareholders equity. It is expressed as a percentage and calculated by dividing the net profit for the year by the average net worth during the same period.	14.27	18.22	(21.7)

RISKS AND THEIR MITIGATION STRATEGY

Operating within a dynamic and multifaceted environment is central to our role as a leading contract manufacturer. This operational breadth inevitably exposes us to a variety of business risks that could impact performance and stability Recognising this, we maintain a proactive and structured risk management framework designed to anticipate challenges, reduce their likelihood, and limit financial exposure to manageable levels Rather than treating risk as an isolated concern, we integrate it into core business planning. By embedding mitigation strategies into our everyday processes, we safeguard performance, protect stakeholder interests, and build long-term resilience across economic cycles

Risk	Impact	Mitigation Strategy	Risk Level
Economic Risk	Our operations are influenced by a range of macroeconomic variables, including inflation fluctuations, regulatory shifts, currency exchange volatility, rising interest rates, and political uncertainty. Additionally, evolving consumer preferences present an ongoing challenge. Collectively, these dynamic external factors have the potential to materially affect our business performance and operational stability.	In response, we continue to base our strategy around the contract manufacturing of a broad spectrum of essential goods, keeping our business relatively insulated from economic slowdowns. The steady demand for everyday consumer necessities provides a natural hedge against market fluctuations. Our diversified contract manufacturing portfolio, spanning multiple FMCG segments, further enhances consistency, allowing us to maintain smooth and uninterrupted functioning across our facilities	Medium
Liquidity Risk	Our exposure to liquidity risk arises from the potential difficulty of securing sufficient funds to meet our financial commitments promptly or, in some cases, entirely.	In response, we focus on effective management of cash flow variability. Deploying a forward-looking strategy that spans short, medium, and longterm horizons, we ensure early identification of potential risks, followed by the prompt implementation of mitigation measures.	Low
Contract Risk	Our business remains susceptible to financial or reputational setbacks if client-specific expectations and compliance standards are not consistently met.	In response, we prioritise consistent delivery of high-quality products as a core mitigation strategy to secure contract renewals from existing clients and attract new business engagements.	Low
Raw Material Price Risk	Our operations are vulnerable to raw material risks arising from global and regional market dynamics, including supply constraints, demand fluctuations, and inventory imbalances. Volatility in raw material prices, particularly upward trends, can directly affect our operating costs and overall profitability.	In response, we structured our business model to allow cost escalations to be transferred to our principals. This approach helps cushion our financial performance from external fluctuations. Additionally, our well-established supplier network and deep industry insight position us well to procure raw materials efficiently, while acting swiftly to market volatilities.	Low
Risk	Impact	Mitigation Strategy		Risk Level
Personnel Risk	Our ability to attract and retain skilled talent is facing increasingly intense competition within the contract manufacturing industry. This persistent challenge heightens the risk of potential staffing gaps, which can make it difficult to fill key roles across the organisation in a timely manner.	In response, we follow a structured and strategic recruitment process designed to ensure alignment between role requirements and individual capabilities Our human resources team remains focused on timely hiring, cultural fit, and skill relevance, ensuring that the right talent is placed in the right roles.		Medium
Quality and Safety Risk	Our reputation in the marketplace is closely tied to stringent adherence to safety and protection protocols Any deviation from these standards carries the risk of reputational damage, potentially eroding trust, goodwill, and credibility we have nurtured with clients, partners, and the wider community	In response, we maintain a quality management system that ensures thorough, end-to-end oversight across the entire production lifecycle, starting from raw material sourcing to the final delivery of finished products.		Low

HUMAN RESOURCE MANAGEMENT

At HFL, we value our employees as the mainstay of our Company. Through an agile and relevance-driven talent strategy that emphasises on attracting, nurturing, and retaining high-calibre individuals, we foster a supportive and progressive work environment. By consistently monitoring employee engagement, we enhance productivity, while our round-the-year training focuses on health, safety, and skill advancement Our commitment to career development, inclusivity, empowerment, and well-being leads to a value-accretive employee experience and strengthens organisational resilience. Above all, we maintain world- class safety protocols across all operational sites, working closely with regulatory bodies to ensure strict compliance and prevent workplace incidents.

As of March 31, 2025, our workforce comprised 1,458 employees.

To recognise the contribution of our employees and strengthen our long-term value creation agenda, we undertook two key initiatives during the year:

• A preferential share allotment in our footwear subsidiary, offering identified investors an equity stake and fostering a shared vision for future growth

• The launch of an ESOP scheme, designed to reward high performers, enhance talent retention, and attract future leaders to drive our Companys continued success

CORPORATE SOCIAL RESPONSIBILITY

We stay committed to setting higher benchmarks in ethical, inclusive, and sustainable business conduct, aligning with our Corporate Social Responsibility (CSR) philosophy We view social and environmental stewardship as essential components of our core strategy By embedding innovation into our CSR practices and integrating them with day-to- day business functions, we continue to play an active role in shaping a more resilient national ecosystem

Through our targeted initiatives, we cover a vast set of focus areas, including quality education, public health, sanitation, environmental sustainability, sports development, and the promotion of arts and culture. Over time, we have been able to create meaningful impact in the lives of numerous underserved individuals. Our efforts enabled underprivileged children to access education, government schools to secure improved infrastructure, and vulnerable communities to receive critical medical support.

We are enhancing learning environments in government schools by providing essential resources such as books, uniforms, laptops, desks, and sports equipment, along with ensuring access to clean drinking water. Moreover, through the installation of water systems and solar-powered streetlights, we are creating a secure, functional, and well-lit school surrounding.

Going forward, the empowerment of the girl child remains a strategic priority, with targeted initiatives around menstrual hygiene, education, and overall wellness. As part of our broader mission to serve those in need of medical attention, we remain actively engaged in supporting lifechanging healthcare services. Our dedicated efforts span cancer treatments, cataract surgeries, and the distribution of prosthetic limbs and mobility aids to differently abled and economically disadvantaged individuals. Together, these sustained endeavours reflect our firm resolve to build a more empowered society.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

A strong internal control environment is an essential pre-requisite to safeguard stakeholder interests, ensure compliance, and enable sustainable value creation. The Board of Directors of our Company established a comprehensive framework of Internal Financial Controls (IFC) as defined under the explanation to Section 134(5) (e) of the Companies Act, 2013. These control systems are designed to be robust and appropriate to the scale, complexity, and nature of our operations. Recognising the dynamic context in which we operate, we view our IFC framework as an evolving and living system. It adapts continually to reflect changes in business models, technology, competition, industry benchmarks, regulations, legislation, and the overall economic landscape. As the business expands and diversifies, control gaps may naturally arise. To address this, we follow a structured process to proactively identify, assess, and mitigate such gaps. In addition, we introduce new or enhanced controls whenever necessary to ensure that control gaps or other material risks are effectively managed.

CAUTIONARY STATEMENT

This document contains statements about expected future events and financials of our Company, which are forward- looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that the assumptions, predictions, and other forward-looking statements may not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as several factors could cause assumptions, actual future results, and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in this section of the Annual Report.