Lotus Chocolate Company Ltd Management Discussions

(a) Industry Overview

The Indian cocoa and chocolate ecosystem continue to demonstrate strong structural growth, supported by rising consumption, premiumization trends and increasing urbanization. The domestic cocoa beans industry in India is currently estimated at approximately 14 million tonnes, with cocoa derivatives accounting for nearly 11 million tonnes per annum. The derivatives segment is expected to grow at a compounded annual growth rate (CAGR) of ~15%, driven by rising demand from chocolate manufacturers, bakery segments, and evolving consumer preferences. By 2030, the total cocoa and derivatives market is projected to reach approximately INR 15,000 crore, indicating significant headroom for value-added product expansion.

On the demand side, the broader chocolate and confectionery marketin India is estimated at around INR 38,000 crore in consumer spends, with the chocolate category contributing ~58%of the total market share. The overall industry is expected to grow steadily and reach approximately INR 50,000 crore over the next five years , reflecting consistent demand across both urban and semi-urban markets.

(b) Segment Analysis

Chocolate Segment

The chocolate category in India is relatively consolidated and dominated by multinational corporations such as Mondelez

(Cadbury), Nestl? and Mars. These players benefit from strong brand equity, extensive distribution networks and sustained marketing investments.

However, the segment is witnessing increasing participation from domestic companies such as Amuland Schmitten Chocolates, which are gaining traction through competitive pricing, localized product offerings, and expanding retail presence.

Growth in the chocolate segment is being driven by:

Increasing disposable incomes

Growing preference for indulgent and premium products

Expansion of modern retail and e-commerce channels

Rising demand in tier 2 and tier 3 cities

Confectionery Segment

In contrast, the confectionery segment remains highly fragmented, characterized by numerous regional and unorganized players. The absence of strong pan-India brands presents both a challenge and an opportunity.

Key characteristics of the confectionery market include:

Price-sensitive consumer base

High volume, low-margin dynamics

Strong regional brand loyalties

Limited product differentiation in the mass segment

This fragmentation creates an opportunity for organized players like our Company to build scalable brands through innovation, distribution expansion, and quality differentiation.

(c) Market Trends and Growth Drivers

The industry is being shaped by several key trends:

Premiumization: Increasing consumer shift towards dark chocolates, artisanal offerings, and higher cocoa content products.

Health Consciousness: Demand for low-sugar, organic and functional chocolates.

Occasion-based Consumption: Growth in gifting, festive packaging and personalized offerings.

Distribution Expansion: Rapid growth of e-commerce, quick commerce and modern retail formats.

Localization: Rising demand for flavors tailored to Indian tastes.

(d) Competitive Landscape

The competitive landscape is marked by a mix of global and domestic players:

Global Leaders: Continue to dominate due to scale, brand strength and innovation capabilities.

Indian Entrants: Gaining market share through affordability, regional insights, and supply chain agility

Artisanal Brands: Emerging in premium niches with differentiated offerings

While chocolates remain relatively consolidated, the confectionery segment offers scope for consolidation and brand building.

(e) Opportunities

The Company is well-positioned to capitalize on the following opportunities:

Expanding demand for premium and differentiated chocolate products

Untapped potential in tier 2 and tier 3 markets

Ability to build a strong brand in the fragmented confectionery space

Increasing consumption driven by younger demographics

Export opportunities in niche and specialty chocolate segments

(f) Risks and Challenges

Despite strong growth prospects, the industry faces certain risks:

Volatility in cocoa prices and supply constraints

Intense competition from established multinational players

Price sensitivity in mass segments impacting margins

Supply chain disruptions and inflationary pressures

(g) Segment and Product wise Performance:

		Volume	Value	Realization
		(T)	(Rs. Cr)	(Rs. /kg)
	Product		FY 25-26
	Cocoa Mass	1,714	163.9	956
	Cocoa Butter	1,202	156.7	1,303
	Cocoa Powder	972	50.1	515
B2B Business	Choco Chips	1,992	35.7	179
	Slabs	1,075	22.4	208
	Milk Covering	119	4.0	336
	Cocoa Beans	2,516	101.6	404
	Sugar	5,902	25.2	43
B2B Business	Others	93	2.5	239
	B2B Total	15,586	562.0
	Toffeman	319	4.4	139
	High 5	130	2.5	188
	Ravalgaon	179	2.3	131
	Tango	81	1.6	204
	Chuckles	96	1.6	170
B2C Products	Eclairs Symphony	115 97	1.6 1.1	135 118
	On & On	45	1.0	234
	Kajoos	19	0.6	306
	Others	17	0.5	305
	Zellers	4	0.1	369
	B2C Total	1,102	17.5
	Grand Total	16,688	579.5

(h) Outlook

The business outlook for FY26-27 is positive with both value and volume expected to grow.

The focus remains on strengthening the B2B business while parallelly building strong in roads in the B2C segment through omni channel distribution and portfolio expansion across key segments. With increasing formalization of the market and growing acceptance of premium products, the sector offers significant opportunities for both scale and value of volatility of the bean prices in the short term, there is likely to be impact on volumes; however over the year with necessary build up in distribution and innovation for both B2B and B2C portfolios, your company will witness a strong growth trajectory and preference among consumers.

(i) RISK MANAGEMENT

Your Company maintains a robust system of internal controls, commensurate with the size and complexity of its business operations. The system provides, inter alia, a reasonable assurance of protection against any probable loss of the Companys assets announcements and actions while the Companys ‘code of conduct policy provides detailed guidance on disclosures and situations depicting conflict of interest. The organization has a zero-tolerance policy towards unfair conduct or fraud.

Financing Risks

Most of the Companys debt is in the form of short-term debt from capital markets. This exposes the Company to the risk of non-availability of external capital due to macro factors such as liquidity, volatility in interest rates and general economic environment. The Company continually monitors funding requirements, evaluates market conditions and engages with multiple financial institutions to mitigate the risk of capital inadequacy.

Supply Chain Risk

Supply Chain Risk is a critical enabler of our business success. The Companys ability to drive growth, innovation and operational excellence is heavily reliant on its ability to attract, retain and imbibe a culture of Food Safety and world class infrastructure to develop Quality products for its customers and consumers.

To mitigate this risk, the Company has invested in building an agile and performance-oriented supply chain structure, supported by Quality First Mindset and create a strong employee and labor immersive culture to imbibe Quality First approach. Our focus on internal enhancement and efficiency building through structured renovation and capacity build up programs is designed to create a future-ready supply chain pipeline.

(j) Internal control systems and their adequacy

The Company has an adequate system of internal controls to ensure that transactions are properly authorized, recorded and reported, apart from safeguarding its assets. The internal control system is supplemented by well-documented policies, guidelines and procedures and reviews carried out by the Companys internal audit function, which submits reports periodically to the Management and the Audit Committee of the Board. The self-assessments by process / control / SOP owner are also used as the basis of CEO and CFO certification as required under Regulation 17(8) of the SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015. Our Company has a favorable work environment that motivates performance, customer focus and innovation while adhering to the highest degree of quality and integrity.

(k) Discussion on financial performance with respect to operational performance

The Companys financial performance for the year ended March 31, 2026 is summarized below:

Particulars	2025-26	2024-25
Revenue from Operations (net)*	579.55	573.75
Other Income	36.06	0.81
Profit/(Loss) before Depreciation, Amortization, Interest and Taxes	21.39	31.98
Less: Interest	16.30	7.11
Less: Depreciation and Amortization Expense	3.92	1.81
Profit/(Loss) Before Tax	1.17	23.06
Less: Tax Expense	1.07	5.83
(includes current tax, deferred tax, short /excess provision of tax relating to earlier year/s)
Profit/(Loss) for the Year	0.10	17.23
Add: Other comprehensive Income	0.04	(0.15)
Total Comprehensive Income for the Year	0.14	17.08

(*excludes Goods and Service Tax)

(l) Material developments in Human Resources / Industrial Relations front, including number of people employed

Your company continues to recognize human capital as a primary catalyst for growth, operational excellence and long-term sustainability. During the year under review, the Human Resources function remained focused on architecting a high-performance, future-ready organization while maintaining a stable and progressive employee relations environment. On the workforce front, the Company witnessed calibrated, business-aligned growth; the core headcount (excluding B2C Sales) transitioned from 140 in March 2025 to 150 in March 2026, reflecting an optimized organizational structure. Simultaneously, to fuel our strategic expansion, the B2C Sales workforce was aggressively scaled from 41 to 245 employees, significantly enhancing our market penetration and frontline execution capabilities.

Furthermore, the company has voluntarily, in alignment with global ESG (Environmental, Social, and Governance) frameworks, deepened our commitment to Diversity, Equity and Inclusion (DEI) and holistic employee wellbeing, ensuring the Company remains a preferred employer in a competitive talent landscape.

Central to our manufacturing philosophy is an uncompromising focus on Environment, Health, and Safety (EHS). Our factories operate under the highest safety standards, mirroring international benchmarks to ensure a "Zero Harm" workplace. By embedding a culture of safety ownership at the shop-floor level and utilizing predictive safety audits, we have maintained an exemplary safety record across all clusters. This synergy between human capital development, digital HR empowerment, and rigorous EHS protocols ensures that as we scale our footprint, we do so with a workforce that is protected by a world-class safety ecosystem. Through these people-centric practices and strong governance, the Company is well-positioned to sustain long-term value creation for all stakeholders.

(M) Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in detailed explanation therefor key

Particulars	FY 2025-26	FY 2024-25	Difference	Reasons
Debtors Turnover (in times)	3.86	7.17	-46%	Volatile markets has led to increase in cash realization cycle thereby increasing the average Trade receivables
Inventory Turnover (in times)	8.17	12.54	-35%	The inventory being maintained at optimum level to service the sales
Interest Coverage Ratio (in times)	1.07	4.01	-75%	Increase in interest expenses coupled with decline in operating profits has lead to lower coverage
Current Ratio (in times)	1.16	1.18	-2%	-
Debt Equity Ratio (in times)	1.64	2.63	-38%	This decrease is attributed to repayment of working capital demand loan.
Operating Profit Margin (in %)	3.01%	5.12%	-43%
Net Profit Margin (in %)	0.02%	3.00%	-99%	The volatile market conditions has led to stressed gross margins resulting in lower profits
Return on Net worth (in %)	0.17%	28.94%	-99%