Kingfa Science & Technology (India) Ltd Management Discussions

A. INTRODUCTION

This report addresses the Management views and perceptions of the business considering the current scenario based on the market environment and possible growth opportunities with the visible and imminent headwinds and challenges while analyzing the performance for the year under review. The report also presents the summary of control and counter measures being initiated and also the Development of Human resources. The report should be read in conjunction with the Directors report to the shareholders, the Financial reports and other notes provided as a part of the annual report.

B. ECONOMIC SCENARIO

The year 2024-25 is one of mixed events. We saw continuation of geo-political tensions at multiple locations. Hence we can say the year 2024-25 started with a mixed feelings for the entire world. The rebuilding of economies after the devastating Co-vid19 was almost complete and World heaved a sigh of relief from the pandemic. The Southwest monsoon, the one that covers the major parts of India was ‘below normal when it started in Jun24, However, in the following months the rainfall was good enough to say the monsoon was above normal overall.

The manufacturing activities, agriculture and service sector were by and large active during the year 2024-25. Travel activities were brisk and streamlined indicated an economy well recovered from down fall seen in earlier years since the pandemic. In 2023-24, Indias demand for fossil fuels saw a mixed trend. While natural gas demand saw a notable increase, oil demand grew more slowly, and coal demand also rose, driven by the power sector. However, India is also experiencing significant growth in renewable energy capacity and a shift in consumer preferences towards cleaner energy sources and ‘Green was the watchword.

The Ukraine-Russia crisis that began towards the end of the FY 2021-22 continued relentlessly even during 2024-25 and the effect of polarizing nations, sanctions and other measures continued in spite of efforts made for cessation of hostilities. In spite of this continued tension, the Oil prices during the year maintained almost steadily.

The geo-political tensions in the middle east did create its share of polarization among the nations. However the Trade did not suffer much due to this.

The change in government in USA brought in issues related to the customs tariff structure which almost tumbled the major economies of the world. The risk related to different raw materials changed swiftly causing disturbances in pricing, logistics and free availability across the Globe. As we go through reading this report, the issues should have settled well through saner dialogues .

On the exchange rate front, the INR remained more or less at similar levels but fluctuating widely within each month in the first half in FY 2024-25. While the exchange rate stabilized in Q3, it went up again, reaching new heights in Q4 due to US Tariff related issues

The exchange rate which was at Rs.83.03 (average) in Q4 FY

2023- 24 went up to Rs.84.57 (average) in FY 2024-25 with wide fluctuations every quarter but stabilizing in the second half of FY 2024-25. The peak was seen in Q4 of FY

2024- 25 at Rs.86.62 (average).

The crude prices declined during the year. Compared to the peak of US$ 93.72/barrel witnessed in the previous year, the current year peak was only US$ 89.94/barrel that too in the beginning month of the year in Apr24. The overall price trend witnessed an increasing levels on a smaller scale during the first half of the FY 2024-25 and then slid to sub US$ 80/barrel reaching the lowest price of US$ 72.73/barrel in the month of Mar25. This trend did not pose much distress to the industries dependent on oil sector

Prices of petrochemical based output, especially the polymers, both commodity as well as specialty polymers, maintained a stable price levels during the year as a result of softened oil prices.

Indian Economy continued to grow during the year and became the fastest growing nation among the G-20 grouping of the Worlds largest Nations. The rapid pace of economic expansion has now resulted in the size of the Indian GDP exceeding Japanese GDP during 2025, making India the second largest economy in the Asia-Pacific region and fourth largest in the World. By the year 2028 itself, we are likely to surpass Germany in terms of GDP as per IMF. It is also a pride for us all to note

In FY 2024-25, the Indian economy saw a reduced growth pattern compared to the previous year. FY 2023-24 saw a peak of 9.7% in Q1 tapering off to 8.4% in Q4. In FY 2024-25, Q1 registered a growth of 6.5 % which went up each quarter and registered 7.4% in Q4

The projected growth for FY 2024-25 is indicated to be 6.5%. Considering the drop in the inflation rate, the industry experts feel this to be of a comfortable level. Overall, we can say that Indian Economy was resilient and continued its robust growth throughout the year in spite of the geo-political tensions in the other parts of the Globe.

C. INDUSTRY STRUCTURE AND DEVELOPMENTS

During the year under review, the industries in general did reasonably well in spite of sluggishness witnessed in few segments as a result of geo-political conflicts and the tariff related concerns. Manufacturing growth was robust early in the year but moderated slightly in Q2 due to global demand headwinds, weather effects, and base-related factors.

The index of Industrial production witnessed increased numbers for the FY 2024-25, however, the percentage growth over the previous year was lesser. The consumption activities continued in modertae trend showing both recovery and restraint across different segments. Statistics indicate that the share of purchase of vehicles in private consumption had crossed 3% for the first time

The manufacturing PMI which is an indication of the expansion/contraction in manufacturing activities, was in excess of 56 for India throughout the FY24-25 indicating good and continued expansion in manufacturing sector. The lowest PMI of 56.3 was registered towards the end of the year, in Feb25 while Apr24 registered the highest PMI of 58.8.

In spite of the slow down in the second quarter, the Indian economy did well in the second half of the year. It is notable that PMI for India was steady in spite of global turmoil owing to political conflicts at multiple locations.

The Indian automotive industry is making steady growth over the years and managed to maintain growth trend in spite of economic turmoil witnessed in other regions. However, the overall growth in production of automobiles in 2024-25 is marginally lower at 9.1% compared to 9.6 % for the previous year. The passenger vehicles registered a modest growth of 3.3% compared to 6.9 % in the previous year. The two wheelers registered a Y-o-Y growth of 11.3% which is 1% higher than that of the previous year. Notable is that the CARG for 6 years is at healthy 6.7% now. It is also to be noted that Indian automotive industry is currently the second largest in two wheelers, eighth largest in commercial vehicles, sixth largest in passenger cars and the largest in tractors.

Automotive Mission Plan 2026 aims to make the Indian Automotive industry a significant contributor to the ‘Skill India Program and make it one of the largest job creating engines in the Indian Economy. The vision statement of AMP 2026 foresees that Indian Automotive industry will be among the top three of the world in engineering, manufacture and export of vehicles and auto components.

AUTOMOTIVE INDUSTRY IN INDIA PRODUCTION TREND

It should be noted that the auto sector is cyclical and the cyclicality varies from segment to segment. The commercial vehicle sales are linked to overall economic growth while that of tractors are linked the monsoon. Compared to these segments the passenger vehicles and two wheelers are less cyclical. A mix of factors such as rise in the cost of vehicles due to changes in emission and regulatory norms, changes in lending rates and available disposable incomes decide the sale growth of PV and 2W. While the current tariff related threats loom large over the auto ancillary industries in India, the growth in the Indian economy is expected to result in a robust growth in the coming years for Indian auto industry.

D) COMPANY PERFORMANCE

Indian industry segments in 2024-25 demonstrated broad-based growth, driven by both domestic demand and export performance, despite some sector-specific slowdowns and global uncertainties. Each industry segment has its own set of determinants reflecting on their performance Your company is no exception to the trend witnessed in the manufacturing sector.

1) Operations

As we point out every year, our company has always been ahead of the growth curve so that we are in the forefront, be it technology, or service or manufacturing excellence. Our manufacturing facility at Chakan near Pune, continued to be strengthened with addition of capacity with new compounding lines added. With the first plant erected at Chakan filled with all the slots fitted with compounding lines of varying capacities, procurement of additional line for the expansion in plant 2 started during the year and two new lines erected & commissioned. The plan is to keep adding dedicated lines to produce different variants of engineering plastics of world class quality in India itself. Our team continued to localize more and more Engineering plastics compounds reducing the lead time for the customers and a premium local choice. The further addition of compounding lines will strengthen the same. It is also imperative to state here that the efficiency of the manufacturing activities to enhance productivity is given top priority so that your company sets standards in minimizing cost of conversion.

The relevance of World class testing facilities is crucial to developing compounds for demanding applications in automotive as well as Appliances. The state of the art lab facility created at Chakan plant obtained NABL accreditation during the year making it easier for our customers to get recognized material certifications. The lab also saw addition of newer equipments to support development activities and to strengthen the technical capabilities of your company. There are now nine dedicated lines for laboratory scale and pilot scale production of new compounds to help technical teams to quicken development activities in supporting our customers.

The government of India is on the process of making BIS approval mandatory for all polymers, for both locally manufactured and for imports. Your company had obtained BIS approval for ABS compounds in the previous year itself. During the current year, BIS approval was obtained for PP compounds that are manufactured in all our three plants at Chakan, Pondicherry and Manesar. BIS approval for PE compounds manufactured at Chakan plant is also completed

We are proud to intimate you all on successful filing of two patents related to polymeric compounds during the year. Your technical team is continuously working on getting more and more of our innovations covered by patent rights.

When we talk of fire safety of any appliances or vehicles, the certifications from the Underwriters laboratory (UL) is critical in qualifying the plastic compounds. We are delighted to convey to you that during the year, we obtained UL certifications for Flame retardant PP compounds produced at Pondicherry as well as Chakan plants. Your company also completed UL certifications for Flame retardant Polyamides, PBT, HIPS & ABS compounds. This will enhance the utility of Kingfa compounds used in appliances as well as automotive applications especially in EV segment. Use of our UL certified materials add value to the products made by our customers

Your company continued to localize specialty compounds which are high value orders through technology transfer from parent company. Alloys of engineering plastics and PE coatings used in oil/gas/water transportation were successfully localized during the year

The PPE division continued to keep adding newer safety products for the Indian market apart from trading on Nitrile gloves. We are pleased to inform you all that Kingfa India introduced ‘Bio-degradable gloves, the first to hit the India market apart from ‘Protective Overalls. The division continued to get relevant product certifications as per the needs of the end users.

In the previous year we saw the raw material prices at their downtrend from their peak in 2022-23. That downward trend continued in the first quarter of FY 2024-25 in spite of the volatile geo-political conditions that continued unabated during the year. The last three quarters saw the prices almost stable though intermittent spikes happened due to tariff related issues. Exceptions were seen in few polymers like ABS & HIPS which ruled at higher prices compared to the previous year. Overall, we can say the current year had stable prices in RM front.

The logistics cost remained at manageable level during the year. The piracy issue around Red Sea witnessed towards the end of the previous year was under control during the year and did not pose much of a problem for movement of shipping lines.

We continue to take support of our principals in creating multiple and alternate options to have a greater control on key RM prices and availability. The group companies supported us at critical times supplying us the right materials at the right time. The supply base continued to be expanded to minimize the risks and to have better control. Key suppliers from India were invited to Kingfa Global supplier meet during this year also and given opportunity to learn about global Kingfa policies and initiatives.

Inventory management both at RM and FG level posed challenges in view of the unpredictability seen in customer off-take patterns. The internal team managed it well with continuous monitoring, realigning supply route/ transportation and developing alternate vendors

In todays World, Sustainability is the watch word in the industries everywhere. As Green initiatives take precedence over other conventional options, the need for conserving energy and directing our focus on sustainable options/solutions is inevitable. Your company is also looking into sustainable solutions as we move forward towards becoming carbon neutral for all Kingfa units by 2050 as stated earlier. Options are being explored for creating an eco-system for use of recycled inputs to support OEMs and their customers in their green initiatives

2) Marketing Initiatives

As mentioned under Operations, your company completed the BIS approval process for ABS, HIPS, PP & PE compounds in time to service the customers while the process is initiated for PC compounds which will become mandatory in the coming year. This is a timely action taken for supporting our customers

Your company actively participated and organized seminars through industry associations like Indian Plastics Institute, Elite Plus and AIPMA to keep in touch with existing and potential customers as in the past to keep the engagements alive. Technical lecture focusing on newer technologies, newer material solutions and green Initiatives were presented to the industry participants which helps in widening our circle of association in the industry/OEMs and to make the participants from industries aware of our new product launches and tailor made solutions.

With Kingfa India establishing itself as one of the leading manufacturers of engineering plastics in India gaining significant foot hold in PA, PBT, ABS, HIPS, SAN and blends & alloys, addition of new customers in newer segment continue to be the focus area for the Sales & marketing team. Your company has taken significant share for engineering plastics in the appliances sector especially in the washing machines, coolers and Air-conditioners and continue to add more and more customers in other segments as well. In the Electrical & electronics segments, the focus is on both global and local players with suitable products offered locally

The share of Electric Vehicles in the overall Passenger Vehicles is on an increasing trend with basic infra-structure for charging the vehicles getting established country-wide. All Auto OEMs keep announcing launch of newer models more in the EV category. Further to the successful commercialization of Flame retardant compound for 2W segments in the previous years, similar offerings were developed for the 4W segment and is getting established well across our customer base. Your company continue to conduct in-house work shops at the campus of the leading Vehicle makers to make them aware of the products and services that Kingfa can offer for them to support them in their innovations and sustainability efforts.

3) Human Resources & Industrial Relations

Your company is honored to state that the morale of all the employees continues to be high during the year under review. As is the practice followed in earlier years, the technical, marketing, operations, finance, sourcing and other internal teams were strengthened with the addition of a mix of new hands through campus interviews conducted at leading institutions across India. Fresh PhDs were also inducted to the technical team with a view to enhance the technical capability of your company and to make forays into newer material solution areas. Your company is sure that this is bound to result in higher confidence level for our customers in Kingfa as a total solution provider. The NABL accredited lab provides the right environment for the technical team to help realize their fullest potential

The members of the sales, technical and internal teams visited our HQ at China and underwent training on the latest trends in Polymers and how new applications were added to Kingfa basket apart from training related to trade nuances and system requirements. The members of the Sourcing team were given opportunity this year also to be part of the ‘Supplier conference held at China for the suppliers of all Kingfa facilities. The training program also included sessions on imparting the Kingfa Culture with a view to make Kingfa team members feel as one united family

The overseas team members continued their good work in converting business opportunities to commercial supplies to enhance the export sale from India . New opportunities were explored all the time in order to build a long list of projects under incubation. The experience that the team gains in getting new business abroad is immense for the future of the company. Interaction with transnationals who are setting up manufacturing in India is also critical for future business and your company will benefit from this greatly when they commence operations in India in the near future with whatever work being done now.

The permanent employees on the rolls of the company stood at 285 as of 31st March 2025.

4) Business Opportunity

The Companys strategy of growing much above the market trend by aggressively pursuing all opportunities and at the same time continuously investing in people, technology, state of the art facilities, capability and capacity ahead of the demand curve has been proved right with Kingfa registering bench mark growth levels in the polymer compounding industry. We are supremely confident that this objective would put us in the right place to fully capitalize on the upswing in manufacturing growth in India in the coming years as the concept of ‘Viksit Bharat - ‘Developed India resonates.

Your companys focus on export is yielding results. Exports to South Africa and Thailand were well established during the year and work is on to extend our exports to other countries especially Morocco & Egypt in Africa

Your company continued to successfully carry out homologation of approvals that Kingfa has in China and other countries for PP and Engineering Plastics to India OEMs. The newly established NABL accredited laboratory became the cynosure of all eyes when customers and OEMs alike visited your Pune plant. The new lab facilities showcase the technical capabilities of Kingfa and the length to which the company can go to support the customers. The conviction and confidence reposed by the customers on Kingfa get strengthened when they visit the laboratory.

E) RISKS AND CONCERNS AND THREATS

The exposure of the Company to various types of risks is detailed below along with the strategy employed to manage / mitigate the same. Your company goes through a formal risk assessment process with the help of HQ in order to identify various risk factors and to mitigate the same. It is also reviewed by the Risk Mitigation Committee

Business risks

Business Risks are permanent and cyclical with lot of factors contributing to the same and also the ability of the customers to expand and spend. We are sensitive to the same and are focussing our efforts across Industry segments and also expanding our product basket. By continuously expanding our market width and engaging with wide spectrum of Industries we feel that we will be able to significantly mitigate if any one segment runs into rough patch.

Financial Risks

Financial risks are real and permanent and usual part of business and the company always views the same seriously and continuously. Inventory and receivables are continuously reviewed and working capital is managed tightly and ensure optimal cash flow. We apply the lean principle in both, while being adaptive to the market swings to get the best benefit out of the customers demand swing. With the effective implementation of SAP we are able to review these in real time and make effective business decisions.

As our key inputs are derivatives of Petroleum, price variations and volatility are normal and secondly not in our control. Multiple options and sources and robust planning and analysis helps us mitigate the over all risk. Strategic decisions are taken at the appropriate time for key input sourcing in line with the perceived risk factors

We have effectively used resources from our HQ to mitigate interest cost risk. However we continue our focus on receivables and creditors management to reduce risk. Periodic reviews are conducted for the same and suitable actions taken to keep the receivables at manageable limits

Commodity Price Risks

The Company is affected by the price volatility of certain commodities. Its operating activities require the on-going manufacture of and therefore require a continuous supply of polypropylene and other engineering plastics resins. However, the company being indirect user of these commodities and based on past trend. pass on these volatility to customers, it does not have direct impact on profitability over a period of time. Fluctuations, however, are inevitable. As we mentioned earlier, strategic decisions are taken at the appropriate time for key input sourcing in line with the perceived risk factors and volatility

Foreign Exchange Risks

Adverse movement of Foreign exchange does present a risk and the same arises as we do import critical raw material components. We use the services of professional advisory with a structured and planned approach to manage and reduce the impact of any adverse movement.

i) To reduce the probability and potential cause of financial risks by making the Company as neutral as possible to currency and interest rate fluctuations.

ii) To create a stable planning environment by taking steps to reduce the impact of currency and interest rate fluctuations both in respect of short term and long term commitments.

iii) We have made significant progress in looking for export markets and have started exports to Thailand and South Africa a year back. We should soon be exporting to Morocco, Egypt, Europe & other continents as well. This would help us hedge our US $ variation risk significantly.

Credit risk

Credit risk is the risk that counter party will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments.

Asset protection

The Company has ensured that all of its assets are properly safeguarded against all insurable risks using appropriate and current valuation methods and the adequacy of the same is reviewed periodically with the assistance of professional independent agencies.

Our exposure to automotive Industry passenger car segment is still very significant and any risk of depression would adversely impact car production. This risk is factored adequately in our growth plans and we have increased our engagement with non Automotive markets to reduce our growth risks. We are progressing well on reducing our dependence on Auto industry by making inroads into the other Non-auto industries. We are confident that we would be able to ride through effectively for any possible downside in the Auto Industry.

F) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The objective of the internal control systems is to ensure optimal use of resources, safeguard the Companys assets, exercise control, and to minimise system deficiencies and weaknesses. Internal Audit is carried out by an independent professional audit firm to review all aspects of the internal control system and adherence to policies and procedures. A systems audit by an external agency was also performed during the year to check the adequacy and internal control systems and to recommend improvements to make it robust. The Audit Committee of the Board of Directors reviews the internal audit reports and the implementation of corrective actions and also addresses all aspects of the Companys functioning from this perspective as required under SEBI and Company Law guidelines.

G) OUTLOOK

a) Only if the trend in increasing offtake of vehicles is sustained will the volume of tonnage increase materialize. Such increased volumes and management of supply chain and logistics should help in bettering margins during the current year subject of course to the price behaviour of Polypropylene/engineering plastic resins and other crude oil based inputs.

b) New commercial vehicles call for increased usage of PP compounds with enhanced performance and lesser weight to Volume ratio on interior parts and your Company is already working with major companies in this segment to benefit from this approach.

c) The increasing trend towards switch to Electric vehicles offers opportunities for introducing our material and to develop new products to meet EV needs. Your company is one of the early movers in this and is actively working with EV manufacturers in both 2W & 4W and expect to capitalize on this in the coming years

d) Control of receivables and inventory and improved process efficiency, should also contribute to the reduction of working capital requirement leading to a reduction in interest costs. Specific task forces are in place to monitor and control the same

e) Dependence on one segment of the industry is always a risk and your company understands the same. Your companys strategy is to broad base its product offerings into other segments of manufacturing, viz, Electrical, Power tools, Engineering, Appliances, Batteries, MCB and other Non-auto segments through aggressive marketing and also offer products higher in the value chain like Engineering Plastics.

The overall outlook looks promising with the country is emerging well in the global economic scenario. With current growth levels sustaining, there is no doubt that India will emerge as the third largest economy in the World in the very near future.

H) Discussion on Financial Performance with Respect to Operational Performance

The details have been furnished in the Directors Report to the Members as well as in the Balance Sheet included in the Annual Report.

I) SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS AND RETURN ON NET WORTH

During the financial year under review, there were no significant changes (i.e., 25% or more) in the key financial ratios, including Return on Net Worth, as compared to the previous financial year. Accordingly, no detailed explanation is required.

J) Cautionary Statement

Statements in the Managements Discussion and Analysis Report describing the Companys projections, estimates, expectations or predictions may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that would make a difference to the Companys operations include demand-supply conditions, raw material prices, changes in Government regulations, tax regimes, economic developments within the country and other factors such as litigation and labour negotiations.